Bangko Sentral to keep record-low policy rates in place in H1 2014, says HSBC

Bangko Sentral ng Pilipinas is likely to keep the record-low benchmark rates into the first half of 2014 considering inflation is benign, Hongkong and Shanghai Banking Corp. said Friday, after the policy-setting Monetary Board on Thursday not to tweak the rates on lending to banks.

 

“The central bank is in a sweet spot and the decision to not alter its stance reflects that, the British banking giant noted in a statement. 

 

“Inflation picked up more than expected in September due to higher food and energy prices but it is still benign and below the central bank's 3 percent to 5-percent target,” HSBC said.

 

During Thursday's policy meeting, the Monetary Board kept key rates at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending – in place since October 2012, citing a manageable inflation environment.

 

“Even though headline inflation should pick up gradually towards year-end and into 2014, we do not expect it to breach the mid-point of the target range until H2 2014,” the bank said. 

 

Inflation the rest of the year could accelerate, but likely within the official 3 percent to 5 percent projection, Bangko Sentral chief Amando Tetangco Jr. earlier told reporters. 

 

“The estimate that we have is that there could be some increase but on the whole, we’ll still be within the target,” Tetangco said in an interview.

 

From the HSBC perspective, the Philippine economy is on a roll with momentum looking up – particularly from the perspective of the demand side. 

 

It also viewed forex exchange flows in a positive light.

 

“Better economic conditions in host countries have boosted remittances lately: these transfers rose more than expected in August, bolstering private consumption in the country,” the bank said.

 

“After a lackluster H1 2013, exports also rose sharply thanks to non-electronics' stellar performance. We expect this trend to continue towards year-end, with both trade and remittances performing better than in H1 2013,” it added.

 

Money transferred by Filipinos overseas through banks rose 6.8 percent $1.9 billion in August from $1.797 billion a year earlier amid growing demand for skilled workers, according to Bangko Sentral.

 

Cash remittances were up 5.9 percent in the first eight months to $14.5 billion from $13.7 billion, the central bank reported in September

 

“Inflation, despite stormy weather and strong growth, remains very manageable in the next six months” HSBC noted and cited the central bank's “operational costs have declined significantly... incurring  only P14.4 billion of losses in the first eight months of the year versus P57.8 billion in the same period last year.

 

“This means that the central bank can comfortably maintain its policy position. The work for the central bank is largely done, as liquidity, growth, and inflation trends are more than satisfactory,” the bank added. – VS, GMA News