BSP's next policy move likely a hike in Q4 15

Philippines March inflation came in slightly weaker than expected, but core inflation came in stronger than the forecast at 2.7% (Consensus: 2.5%; February: 2.5%). Headline inflation fell amid a further easing in rice and food prices, while the pickup in core inflation was driven by higher household utilities costs, and supported by sticky housing rental inflation. 

According to Barclays research, inflation to stay broadly within the BSP's 2-4% target range this year, with weaker food and energy inflation offset by firm core inflation.

In remarks after the release, BSP governor Tetangco reiterated that the current policy stance "remains appropriate" but that he is "ready to make adjustments as warranted", and that BSP "remains watchful, particularly of movements in commodity prices". At the 26 March policy meeting, Deputy Governor Diwa Guinigundo stated that domestic demand was "resilient" and that the economy "doesn't need additional stimulus".

BSP appears comfortable with its current policy stance, as although low inflation is leaving room to keep policy on hold, growth remains robust, making it unlikely that it will join other central banks in the region in easing policy. 

"The Philippines should be a significant beneficiary of lower oil prices, and we expect growth of 6.5% in 2015, while the central bank is looking for even stronger growth of 7-8%. We continue to forecast the next policy move will be a hike, most likely in Q4 15, after the Fed begins tightening", said Barclays in a report on Tuesday.