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Philippines seen holding rates, confident on growth and inflation

by December 21, 2016 General

MANILA: Strong growth and manageable inflation should let the Philippine central bank, at its first meeting since the Federal Reserve hiked US interest rates, keep its benchmark interest rate on hold at 3.0% on Thursday.

The Fed last week signalled a faster pace of increases in 2017, potentially luring more capital away from the Philippines and other emerging markets.

All 13 economists polled by Reuters said they expect no change in the central bank’s key overnight borrowing rate.

President Rodrigo Duterte’s economic managers expect the Philippines to remain one of the region’s fastest-growing countries, as strong domestic demand and higher government spending shield the economy from global headwinds.

Some analysts in the poll even expect the central bank to raise interest rates as early as in the first half of 2017.


“Not only there is the anticipated upward pressure from global rates, but Bangko Sentral ng Pilipinas is also likely to be watching the growth-inflation dynamics very closely,” Gundy Cahyadi, economist at DBS in Singapore, said.

“Indeed, given investment growth staying in the double-digits, the BSP may find the need to slow growth momentum,” Cahyadi added.

At a review on Tuesday, officials kept the economic growth targets at 6.5%-7.5% for the coming year and 7%-8% for 2018, even as they forecast the peso to weaken against the dollar over the next two years.

The central bank has projected this year and next year’s current account surplus to significantly narrow due to “uncertainty” about various factors including the pace of Fed rate hikes and the policies Donald Trump will pursue as US president.

The BSP has not tinkered with monetary policy since it raised rates by 25 basis points in September 2014, with the economy in a sweet spot of strong growth and low inflation.

But it set the main rate at 3.0% when it moved to an interest rate corridor framework in June to make policy transmission faster and more efficient.

Economic growth this year might top 7.0% after a 7.1% annual expansion in the third quarter, officials say, while inflation is forecast to be below the central bank’s 2%-4% target and then move inside that range in 2017. – Reuters