MONETARY AUTHORITIES will likely keep policy unchanged again at the last rate review for the year in the face of easing inflation and a cooling economy, a BusinessWorld survey of economists and bankers showed.
All 14 analysts polled late last week expect the Bangko Sentral ng Pilipinas’ (BSP) policy-setting Monetary Board to keep policy instruments unchanged across the board on Thursday.
“Softening inflation and inflation expectations allow BSP room to keep policy steady,” ING Bank economist Jose Mario I. Cuyegkeng said in an e-mail. “Global energy price weakness and improvements in local supply chain for basic commodities and services would likely exert downward pressure on prices.”
Similarly, DBS Bank economist Gundy Cahyadi said via-email: “GDP (gross domestic product) growth has moderated by more than expected in 3Q while softer inflation outlook is also likely on lower crude oil price… We expect no change in the BSP rate…”
Consumer prices rose by 3.7% last month — the slowest in a year — down from 4.3% in October but faster than the 3.3% recorded in the same month a year earlier, the Philippine Statistics Authority reported on Friday. The preliminary result fell at the low end of the central bank’s 3.5-4.3% estimate for November and was lower than the 4% median forecast in a BusinessWorld poll of 11 economists.
The November headline inflation print pushed the year-to-date average to 4.3%, just above the midpoint of the government’s 3-5% target band for the entire year and 4.4% forecast.
Core inflation, which excludes items like food and energy that are prone to volatile price swings, also went down to 2.7% from 3.2%.
As the rise in prices of widely used commodities continued to slow down, BSP Governor Amando M. Tetangco, Jr. has said “this makes us poised to meet the 2014 [inflation] target.”
The government also reported last Nov. 27 that economic growth, as measured by GDP, decelerated sharply last quarter as agriculture and government spending wilted.
GDP grew by an annualized 5.3% last quarter, tumbling from 6.4% in the preceding three months and 7% in July-September last year. Agriculture contracted by 2.7%, and government spending, by 2.6%. Services, which contributed 59.4% of GDP, grew 5.4%, down from 7.7% last year. Industrial growth also slowed to 7.6% from 7.7% amid lower contributions from manufacturing and electricity, gas and water supply, although construction and mining and quarrying surged. While household spending, like services, continued to drive economic expansion, it grew by 5.2%, slowing from 6.2%. Capital formation, exports and imports also grew by slower rates in the third quarter compared to a year before.
Growth in 2014’s first three quarters averaged 5.8%, a long way off the low end of the government’s 6.5-7.5% target this year. Socioeconomic Planning Secretary Arsenio M. Balisacan has said GDP needs to grow at least 8.2% this quarter if the economy is to hit the low end of the target, but at least two other economic managers — Budget and Management Sec. Florencio B. Abad and Finance Sec. Cesar V. Purisima — have conceded that would be a long shot.
In its bid to keep the rise in prices of widely used goods in check, the Monetary Board this year had raised key interest rates by a total of 50 basis points (bps) to 4% and 6% for overnight borrowing and lending, respectively; special deposit account (SDA) rates also by a total of 50 bps to 2.50%; and banks’ reserve requirement ratio by a total of two percentage points.
In its meeting last Oct. 23, the board kept all policy instruments steady after five straight meetings of tightening amid signs of easing inflationary pressures.
Inflation forecasts were also cut to 4.4% from 4.5% for this year, to 3.7% from 3.8% for next year, and to 2.8% from 3% for 2016.
But this pause in tightening will likely be brief as risks that could tilt the balance of inflation toward the upside remain, according to analysts.
BNP Paribas economist Philip McNicholas, in an e-mail, said that the central bank could still be “wary over monetary management given that real credit growth remains elevated and funds are still leaving the SDA.”
“The impact of the… typhoon (Hagupit now lashing Eastern Visayas) may also be a factor should it cause significant disruption to supply chains and deceleration in food prices, especially for rice, has only emerged in the last few prints,” he added.
For her part, ANZ Bank economist Eugenia Fabon Victorino said monetary officials will take their cue from the US Federal Reserve, which could prompt the BSP to resume “gradual tightening in H2 2015.” The Fed’s policy-making Federal Open Market Committee is scheduled to meet for the last time this year on Dec. 16-17.
Bank of the Philippine Islands lead economist Emilio S. Neri, Jr. said while he still expects the BSP to hike policy rates by a total of 50 bps next year, he said that “this will more likely be triggered by alignment of Philippine policy with major central banks rather than a way to manage demand-pull inflation to stay within next year’s 2-4% target.” –Daryll Edisonn D. Saclag, Reporter, Businessworld
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