Looking for cues from the Philippines central bank

Bangko Sentral ng Pilipinas (BSP) is widely expected to keep its policy rates steady this week. Recent rhetoric from the central bank suggests that the BSP is not in any hurry to make a move. And most in the markets, expect steady rates to persist for now. Yet, the inflation picture remains a challenge, as CPI inflation is set to miss the official 2-4% target this year. 

There are risks on the inflation front, particularly given the anticipated impact on food prices from the prolonged drought. Still, CPI inflation is unlikely to surge above 3% anytime soon, and the BSP is very comfortable with this. Excessive liquidity concerns are also no longer in the picture. Loan growth has moderated to circa 13%, down sharply from over-20% in 2014. Indeed, given how GDP growth has also moderated this year, the BSP may get a little uncomfortable if loan growth were to slip below 10%. 

"Looking forward to 2016, we no longer expect any rate hikes from the BSP. In fact, we now see some risks of a policy loosening, partly to facilitate a softer currency. Should there be a need for policy loosening ahead, we suspect that the central bank will initially go with the Special Deposit Account rates", notes DBS Group Research.