BSP on hold, signalling little appetite for cuts

The Bangko Sentral ng Pilipinas kept its policy rate unchanged at 4.00%. This was in line with both consensus and our view, and the fifth straight on-hold decision. It 
also left SDA rates at 2.50%. The BSP also signalled little appetite for any easing in the policy stance, with Governor Tetangco pointing to 'ample liquidity, government 
spending' as supporting growth, and Deputy Governor Guinigundo stating clearly that the economy 'doesn't need additional support at this point'. 
In a further hawkish move, the bank raised its 2015 and 2016 inflation forecasts by 10bp each, to 2.3% and 2.6%, citing a weaker peso and risks from El Niño as drivers 
of the change. The BSP remains confident in the growth outlook, stating that domestic demand conditions 'remain robust'. It is also continuing to watch the Fed closely, 
expressing concern that normalisation 'may spur volatility'.
"Overall, the tone of the comments as suggesting little appetite to ease policy, and the next policy decision is expected to be a hike. The growth outlook remains robust - 
growth of 6.5% is expected in 2015 - supported by a booming Business Process Outsourcing sector, while the Philippines should be a significant beneficiary of the fall in 
oil prices" observes Barclays. 
With that said, benign inflation does leave room to keep policy on hold for the time being. As such, the next hike is expected to take place in Q4 15, after the Fed begins 
tightening. In the meantime, market attention is likely to shift rapidly towards next May's presidential election, which is likely to become a bigger focus from Q3, added SocGen.