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Financial News: Philippine CB Likely To Leave Rate On Hold

Philippine CB Likely To Leave Rate On Hold In 2018

12/20/2017 - 07:50:00 (RTTNews)

(RTTNews) - The Philippine central bank is likely to leave rates on hold throughout next year although both financial markets and the consensus are expecting monetary policy to be tightened, Alex Holmes, an economist at Capital Economics, said.

The monetary board of Bangko Sentral ng Pilipinas, governed by Nestor Espenilla, held the overnight reverse repurchase facility at 3.00 percent, on December 14.

"Fast GDP growth, booming credit and fears around inflation have led many to suggest that BSP will soon need to put its foot on the brake in order to slow an economy in danger of overheating," the economist observed.

Financial markets are currently pricing in the consensus view that rates will be hiked twice next year to 3.5 percent, he added.

On the other hand, Capital Economics expects policy to be left unchanged throughout 2018.

Firstly, inflation moderated to 3.3 percent in November 3.5 percent.

Admittedly, there is likely to be some upwards pressure on inflation next year from tax reform ratified by Congress recently.

However, the impact on inflation next year is likely to be fairly small.

Furthermore, the main driver of the headline rate this year, fuel price inflation, is still set to moderate further.

"The central bank's inflation forecasts, like ours, are for inflation to remain comfortably within its target band of 2-4 percent throughout 2018," Holmes pointed out.

"Meanwhile, the current strong pace of growth is not necessarily a sign the economy is overheating."

During the third quarter, the Philippine economy grew 6.9 percent, which is not exceptionally fast given the Philippines' stage of development.

Indeed, many Asian economies sustained far higher growth rates for years after reaching an equivalent income per capita to the Philippines today, Holmes said.

Finally, booming private sector credit, currently growing by around 20 percent annually, is not as worrying as it might at first seem, he said.

Overall, there was little in today's statement suggests that BSP is in a hurry to hike rates, while Capital Economics continue to expect no change to the policy rate in 2018.

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