BSP policy pause expected


The financial markets generally agree the Bangko Sentral ng Pilipinas is done making appropriate adjustments to the policy rates and pause for now as inflation expectations are well anchored.

This view runs parallel to the notion that the US Fed, still the world’s most influential central bank, has adopted a hawkish pause of its own as well.

What this means is that the markets can expect the policy-making Monetary Board to keep the rates at which if borrows from or lends to banks unchanged when it meets for the last time this year today, Thursday.

Dutch giant ING bank said the anticipated pause in the policy cycle was driven in the main by moderated inflation of 6 percent inflation in November, reflecting a significant deceleration in price pressures.

“The market expects the BSP to finally hold off on adjusting policy rates after five straight hikes,” the ING said.

In addition, ING senior economist Nicholas Mapa listed some of the recent positive developments such as the P1 rollback in minimum jeepney and bus fares.

“With BSP lowering substantially its inflation forecasts to 3.5 percent for 2019 and 3.3 percent for 2020, inflation expectations appear to be well-anchored with the majority of analysts expecting the BSP to keep policy rates unchanged on 13 December,” Mapa said.

“We expect it to keep rates unchanged while simultaneously retaining its hawkish bias by pledging to act against signs of price pressure if these become apparent,” he added, noting that the pause in policy hikes will give the general economy some breathing room.

Meanwhile, the Asian Development Bank (ADB) revised its previous inflation outlook of 5 percent for the full year 2018 to 5.3 percent despite signs of easing price pressures.

At this level, the country’s inflation would hit a level not seen in 10 years. Inflation in 2008 hit 8.2 percent should the projection come true.

“While inflation is expected to ease, the full-year average is still likely to exceed the projection,” the ADB said.

“The recent buildup in inflationary pressure should moderate next year, with inflation still projected at four percent,” ING Bank said.

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