Economists anticipate that the Bangko Sentral ng Pilipinas (BSP) will likely retain its key policy rates without any changes during Thursday’s meeting.
This decision is influenced by the ongoing decline in inflation and the overall stability of the country’s economy.
Aris Dacanay, an economist at HSBC, believes that despite the pause in the US Federal Reserve’s hawkish approach, the BSP will keep its key policy rate steady at 6.25 percent.
The upcoming Monetary Board meeting on June 22 has been characterized by tranquility and consistency, potentially signifying the conclusion of BSP Governor Felipe Medalla’s term on July 3.
Dacanay suggested that due to the relatively stable economic conditions in the Philippines, the BSP is expected to maintain an optimistic and unaffected outlook.
Consequently, the policy rate is anticipated to remain at 6.25 percent during the Monetary Board meeting.
Dacanay also emphasized the central bank’s confidence in its decision, highlighting the timely reduction of the reserve requirement ratio (RRR) on June 30, coinciding with the expiration of the relief measure allowing loans to be considered as reserves for micro, small, and medium enterprises (MSMEs) as well as large companies.
Drawing a parallel with the US Federal Reserve, Dacanay believes that maintaining stable rates will allow the BSP to assess the impact of previous rate hikes on the economy.
The economist acknowledged mixed signals from the economy, as first-quarter gross domestic product (GDP) growth slowed to 6.4 percent compared to 7.1 percent in the previous quarter and 8 percent in the prior year’s first quarter.
Dacanay pointed out that investment might be moderating, as there has been a decline in import demand for capital and a year-on-year easing of outstanding loans for economic activities.
However, import demand for consumption goods and outstanding loans for consumption have demonstrated resilience.
Notwithstanding these observations, the economist underscored uncertainty and potential risks in the policy outlook.
Further reduction in core inflation is necessary, and there could be pressure on the peso due to the US Fed’s indication of a potential policy rate hike to 5.50 to 5.75 percent by the end of the year.
The appointment of the next BSP governor also contributes to the uncertainty, taking into account Medalla’s leadership during a robust tightening cycle to combat inflation and align with the actions of the US Federal Reserve.
Senior economist Nicholas Mapa from ING Bank expects the BSP to maintain its pause on interest rate hikes for the second consecutive meeting while assessing the outlook of the Federal Reserve.
The combination of moderating inflation and the Federal Reserve’s decision to keep rates steady in June supports the expectation of unchanged rates by the BSP.
Similarly, Robert Dan Roces, the chief economist at Security Bank, anticipates that the Monetary Board will retain its policy rate in line with the Federal Reserve’s hawkish stance.
Despite core inflation persisting above the headline rate, Roces highlights the sequential moderation of the consumer price index (CPI).
Inflation is estimated to fall within the target range of 2 to 4 percent around September or October.
However, risks associated with inflation, peso depreciation, and Federal Reserve policy actions remain skewed toward potential increases.
The BSP may consider raising interest rates after this month to effectively manage these risks and maintain a hawkish stance.
According to Asia Macro Weekly by ANZ Research, Khoon Go, the head of Asian research, and Kausani Basak, a foreign exchange analyst, expect the BSP to maintain its benchmark policy rate at 6.25 percent.
This decision is supported by a continuous four-month period of easing inflation, which provides a sense of reassurance.
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