Philippines: BSP still dovish, but we see hikes in H2 – Standard Chartered

Bangko Sentral Pilipinas (BSP) maintained a dovish bias at its policy meeting on 22 March and left the policy rate unchanged, points out Chidu Narayanan, Economist at Standard Chartered.

Key Quotes

“The central bank reiterated that inflation was likely to edge lower in 2019, with the recent rise in inflation likely transitory. BSP revised up its inflation forecast for 2018 to 4.5%, (3.9% under the new 2012 series), but kept its 2019 forecast at 3.5% (3% under the new series), below our forecasts of 4.5% and 4.3% y/y (under the new series), respectively.”

“We believe inflation will continue to edge up through the first half of the year, likely rising beyond 5% by July, before edging down mildly. We forecast inflation to average 4.5% in 2018 and 4.3% in 2019, under the 2012 series. Monetary conditions are among the loosest in three years on strong credit growth, low real interest rates and a depreciating currency.”

“Rising inflation will likely cause monetary conditions to loosen further. We expect BSP to respond to this with eventual policy rate hikes.”

“We also expect further cuts to the reserve requirement ratio, lowering it to 18%, in stages.”