BSP seen to raise rates only in 2nd qtr of 2017

By Riza Lozada

The Bangko Sentral ng Pilipinas (BSP) is expected to raise policy rates only in the second quar­ter of next year as the inflation rates are expected to remain within gov­ernment target for the rest of the year, an economist of investment bank ING Bank said.

In a research note, ING Bank Re­gional Chief Economist Tim Condon said the strong domestic output in the first half, along with the below-target average inflation in the first 10 months, showed that “economic risks are evenly balanced.”

The economy, as measured by gross domestic product (GDP), grew 6.9 per­cent in the first semester, which was at the higher end of the government’s six to seven percent target for the year. It is also higher than the 5.5 percent growth a year ago.

In the second quarter, GNP rose to 7 percent from the previous quarter’s 6.8 percent and 5.9 percent a year ago.

Domestic expansion this year was the result of the robust services and in­dustry sectors, which rose by 4.8 percent and 2.3 percent in the second quarter this year, respectively.

With these factors, Condon said ING remains optimistic on the strong domestic expansion in the near term.

“ING’s Joey Cuyegkeng forecasts the balance tilting toward inflation in early 2017 leading the BSP to hike in the second quarter of next year,” he added.

The BSP’s key policy rate to date is at three percent.

This was adjusted from 4 percent last May in line with the implementation of the Interest Rate Corridor (IRC).

Monetary officials, however, stressed that the change was policy neutral.

With the implementation of the IRC last June, the reverse repurchase (RRP) rate was cut to three percent and the repurchase (RP) rate to 3.5 percent from 6 percent effective June 3, 2016. On the other hand, rate of the Special Deposit Account (SDA) was maintained at 2.5 percent.

Under IRC, the RRP rate serves as the key rate, the RP rate is the ceiling and the SDA rate is the floor rate.

The RRP rate have been main­tained at four percent and the RP rate at 6 percent from October 2014 until May 2016.