DBS eyes no change in BSP’s key rates this week

MANILA, Feb. 9 (PNA) — Bright prospects for the Philippines’ economy this year along with low-inflation environment made DBS discount any changes in the Bangko Sentral ng Pilipinas’ (BSP) key rates this week.

”At this juncture, we reckon that the central bank is quite comfortable with the current GDP (gross domestic product) and CPI (consumer price index) inflation dynamics, DBS said in a research note.

To date, the central bank’s overnight borrowing or reverse repurchase (RRP) rate is at four percent and the overnight lending or repurchase (RP) rate is at six percent.

BSP’s policy-making Monetary Board (MB) will have its first key rate setting this on Thursday, February 12, and it is widely expected to keep rates steady.

The Asia-based financial services group said faster government spending in the last quarter of 2014 “was an encouraging sign for 2015.”

This after domestic growth expanded at a faster pace of 6.9 percent from October to December 2014 from quarter-ago’s 5.3 percent and year-ago’s 6.3 percent buoyed by higher government spending and improved performance of the industry sector mainly due to manufacturing and construction as well as strong private consumption.

For the whole of 2014, growth, as measured by gross domestic product), stood at 6.1 percent, which, however, is below the government’s 6.5-7.5 percent target.

The lower-than-target growth was attributed to lower turn-out in the first three quarters of the year due mainly to the impact of congestion in Manila ports after the City Government of Manila implemented an expanded truck bank from February to September last year.

Relatively, inflation averaged at 4.1 percent in 2014, within the government’s three to five percent target.

With the rebound of growth in the last quarter of 2014, DBS projects domestic expansion this year to remain robust.

The government’s 2015 growth target is a range between seven to eight percent.

DBS said approval and implementation of projects included under the public-private partnership (PPP) is seen to further solidify growth as what has been experienced in recent years.

”The same is expected for this year, although the implementation phase is increasingly in focus,” it said.

This after approval of the projects were delayed a bit due to more stringent rules on bidding process among others.

The research note also cited that “private consumption remains resilient and there is no reason why the BSP should be worried on this front.”

”Indeed, we remain of the view that the central bank may actually prefer to tighten its policy further in the coming season,” it said.

The report noted that sharp moderation in domestic inflation in recent months “is the reason by the BSP is reluctant to raise its key rate for now.”

Domestic inflation peaked at 4.9 percent in 2014 in July and August but has declined since after the implementation of several monetary policy measures such as the 50 basis points hike in the BSP’s key rates and the interest rate of the central bank’s special deposit account (SDA) facility, among others.

Last January, inflation rate stood at 2.4 percent, the lowest after the 2.1 percent in August 2013, partly because of sustained drop in prices of oil in the international market.

DBS, however, pointed out that “recent uptick in global crude oil price may lift up CPI inflation slightly higher in the coming months.”

”But we are definitely far from the 4.5 percent trend seen in mid-2014, when the BSP stepped up on its monetary policy normalization,” it added. (PNA)