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By Melissa Luz T. Lopez, Reporter

Policy settings expected to remain steady -- poll

Posted on December 14, 2015

THE BANGKO SENTRAL ng Pilipinas (BSP) will likely stand pat on current monetary policy settings in its upcoming review despite signs pointing to a rate hike in the United States finally transpiring this week, according to analysts polled last week who noted that the current stance already factors in the impact of such “lift-off” by the Federal Reserve.

All 13 economists polled said the BSP’s Monetary Board will again keep policy steady at its Dec. 17 policy review that comes right after the Dec. 15-16 meeting of the US Federal Reserve in which the latter is widely expected to decide to start raising interest rates after nearly a decade of keeping them near zero.

Reuters reported a 79% chance of the Fed finally hiking interest rates this week.

“The Monetary Board is likely maintain its policy stance in the near term notwithstanding an impending hike in US policy rates. While the implications of such a development on domestic financial market conditions bear watching, markets have in all probability already priced in the prospect and any volatility will likely be temporary,” Remrick E. Patagan, research director at the Institute for Development and Econometric Analysis, said in an e-mail. “Domestic demand and inflation conditions also support the view that policy settings remain appropriate.”

The Monetary Board has kept policy rates unchanged since September 2014, citing benign inflation and firm domestic demand that have anchored economic growth. Overnight borrowing and lending rates have remained at 4% and 6%, respectively, while special deposit account rates have been kept at 2.5% and banks’ reserve requirement ratios retained as well.

Nicholas Antonio T. Mapa, economist at the Bank of the Philippine Islands, noted that “[t]he BSP has consistently highlighted that the Philippines is well-placed to withstand a Fed lift-off and that moves in 2014 were carried out in preparation for the eventuality of a hike by the Fed. BSP has also signalled to the market that they will be keeping policy rates unchanged at its next meeting.”

Inflation has averaged 1.4% in the 11 months to November, well below the government’s 2-4% target range, while economic growth has averaged 5.6% in 2015’s first three quarters against an official 7-8% full-year target -- still faster than many Asian economies.

Analysts polled also held the view that the BSP will adjust key rates only as it shifts to an interest rate corridor system by the second quarter of 2016 in a bid to better influence market rates.

BSP Deputy Governor Diwa C. Guinigundo had earlier said there will likely be a one-time adjustment in benchmark interest rates, although he clarified that such tweak would merely be “operational” and should not be regarded a change in policy stance.