No BSP rate hikes this year – HSBC
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Sun, 13 Jan 2019 16:39:35 +0000
Bangko Sentral ng Pilipinas (BSP) policy rate hikes are unlikely this year with inflation expected to return to target, a banking giant said.
“We no longer see any further rate hikes from the BSP in 2019,” HSBC Global Research said in a report released last week.
The central bank’s policy-making Monetary Board raised key interest rates five consecutive times last year after inflation breached the 2.0-to-4.0-percent target starting March.
It peaked at a nine-year high of 6.7 percent in September and then eased beginning November, prompting monetary authorities to pause from further tightening in December.
HSBC said last month’s lower-than-expected inflation print of 5.1 percent meant that consumer price growth was likely to return to the BSP’s target range in the first half of 2019 — faster than expected.
While inflation is likely to remain a small risk amid the implementation of a second tranche of tax increases, HSBC said that relatively sharp disinflation in food and transport prices due to rice imports and lower oil prices should offset this.
The bank added that its outlook for just one more US Federal Reserve rate hike in 2019 also meant there would be less pressure on the Bangko Sentral to hike rates to support the peso.
“This is particularly significant, given that the BSP considers sharp and rapid currency depreciation as one of the primary factors for any further rate hikes,” it added.
The currency ended 2018 at P52.58 versus the greenback, down sharply from its 2017 close of P49.93:$1.
Monetary authorities, said HSBC, will instead turn their focus on lowering bank reserve requirements.
“We expect the BSP to cut the RRR (reserve requirement ratio) by 300 basis points in 2019, with the first cut as early as 2Q19 (second quarter of 2019), to inject more liquidity in the financial system and support growth,” it said.
The RRR is the proportion of current deposits that banks need to keep with the central bank against the sum they can loan out to borrowers.
One-percentage-point cuts to the ratio, currently at 18 percent, were ordered by the Monetary Board in February and May last year.
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