BANGKO Sentral ng Pilipinas is expected to maintain the current monetary policy settings in the second quarter this year on the back of robust economic growth and manageable inflation environment, an economist said.
“Monetary policy is likely to remain on hold in the second quarter although there is scope for some accommodation. BSP-MB [Monetry Board] is likely to preserve its monetary policy leeway to respond to external challenges,” ING Bank Manila senior economist Joey Cuyegkeng said in a report.
He said economic growth was likely to improve by 6.5 percent in the first half.
“Fiscal spending indicators show improvement although we await January fiscal reports to validate our expectation. Election spending is rising as candidates’ campaigns peaks and as voting and canvassing happened on May 9. Imports of capital equipment in January were strong indicating that capital investments also is a driver,” Cuyegkeng said, adding “support from monetary policy is not necessary.”
Cuyegkeng echoed the projection of Bangko Sentral that inflation would remain moderate and likely to remain within the 2 to 4 percent target range this year and next.
However, he said possible preemptive action might be necessary later this year to ensur inflation expectations remained stable as oil price and other commodity prices increased.
“In the meantime, there is scope for easing since real policy rates are close to 3 percent and would remain at more than 1 percent by the end of this year. Such a move possible later this second quarter could help retain purchasing power of 15 percent of the economy post-election,” Cuyegkeng said.
He said this would also partially cut the pre-emptive tightening in 2014.
The last time the Monetary Board changed the policy stance was in September 2014, when overnight borrowing was increased to 4 percent and overnight lending adjusted to 6 percent. On its March 23, 2016 meeting, the board kept the benchmark interest rates steady for the 12th consecutive time since October 2014 due to a manageable inflation environment.
The economy grew 5.8 percent in 2015, lower than 6.1 percent a year ago and the government’s target range of 7 percent to 8 percent but remained one of the fastest growing in the region.
The government expects GDP this year to grow between 6.8 percent and 7.8 percent anchored mainly on sustained robust domestic demand.
Inflation in the first quarter averaged 1.1 percent, way below the government’s official forecast range of 2 percent to 4 percent. Inflation in January decelerated to 1.3 percent from 1.4 percent in December 2015.
Inflation further slowed to 0.9 percent in February before picking up to 1.1 percent in March because of slight increases in prices of food.