Philippine central bank keeps policy stance on hold, may begin tightening by Q3 2017

As widely expected, the Philippine central bank, BSP, kept its policy stance unchanged today. The policy tools were steady, with the overnight policy rate at 3 percent, overnight deposit rate at 2.50 percent and reserve requirement ratio at 20 percent.

The BSP has maintained its inflation target range at 2 percent to 4 percent for the 2017-2020 policy period. It has also kept its 2016 inflation forecast at 1.8 percent. Meanwhile, it revised up its projections for 2017 and 2018 to 3.3 percent and 3 percent respectively from 3 percent and 2.9 percent.

The BSP looked through the current rise in term deposit facility rates. Liquidity demand usually rises in the run-up to year-end holidays that resulted in the successive rise in TDF rates since November.  On 21 December, the TDF auction was under-subscribed. This pushed up the weighted average rates for 7-day and 28-day TDFs to 3.0279 percent and 3.4317 percent, respectively, noted ANZ in a research report. The Philippine economic growth is expected to be strong in 2017, while inflation is likely to accelerate.

“Considering the 15-24 months of monetary policy transmission lag, we reiterate our expectation that the BSP will return to the tightening table by Q3 2017, raising interest rates by a total of 50bps by the end of 2017”, added ANZ.