The local unit of Dutch bank ING said Wednesday it expects Bangko Sentral ng Pilipinas to begin raising the policy rates in the fourth quarter.
ING Bank Manila said in a report the strong economic growth and low inflation environment might compel Bangko Sentral to keep the policy stance in the near term.
“With strong growth and low inflation [at 1.1 percent year to date in April versus BSP’s 2.1-percent full-year forecast] there is no compelling reason for the BSP to move the policy,” it said.
ING Bank Manila senior economist Joey Cuyegkeng, however, predicted a 25-basis-point hike in BSP policy rates in the fourth quarter.
It said economic growth would likely accelerate to 6.9 percent in the first quarter from 6.3 percent in the fourth quarter of 2015.
“Strong domestic demand supported by steady overseas workers’ remittances, government and election spending and favorable investment environment are behind the consensus GDP growth forecast. These are expected to offset weak exports,” the bank said.
Bangko Sentral’s Monetary Board in its last meeting on May 12 kept the benchmark interest rates steady at 4 percent for overnight borrowing and 6 percent for overnight lending. This marked the 13th consecutive time since October 2014 that it retained the interest rates due to a more manageable inflation environment and robust domestic growth.
Bangko Sentral said it would shift the monetary policy operations to an interest rate corridor starting June 3, 2016.
Bangko Sentral Governor Amando Tetangco Jr. said the rate on the current overnight lending facility of 6 percent would be reduced to 3.5 percent while overnight borrowing rate would be adjusted to 3 percent from 4 percent. The special deposit account rate would be kept at 2.5 percent.
Bangko Sentral said the IRC system would help improve monetary policy transmission and limit interest rate volatility.
Guinigundo said over time, the corridor would allow reduction in banks’ reserve requirements.
The IRC implementation in the Philippines is in line with international central banking standards.
