Barclays sees PH central bank adjusting rates in Q4

MANILA, Philippines – Barclays expects monetary authorities in the Philippines tweaking key policy rates in the fourth quarter of 2015 amid the weaker than expected inflation in June. (READ: Inflation eases to record-breaking 1.2% in June)

In a report entitled “Inflation falls, but BSP still comfortable,” the UK-based investment bank said that with the risk of El Niño to food prices this year and growth likely to recover strongly from the second quarter, Barclays said it is unlikely that the BSP would join other central banks in easing monetary policy.

“We forecast the next policy move will be a hike, most likely in the fourth quarter 2015, after the US Fed (US Federal Reserve) begins tightening,” it said.

The International Monetary Fund has warned the US Fed against raising interest rate, citing that it would add risks to the growing economic and political threats to US growth. Many economists had forecast a rise in September, although recent economic and jobs data had dampened expectations.

“Barring a major change in circumstances, the organization urged keeping rates at the current 0.25% "into the first half of 2016 with a gradual rise in the federal funds rate thereafter,” IMF said, as reported by BBC News.

Interest rates unchanged

The Monetary Board kept key policy rates unchanged with the overnight borrowing rate steady at 4% and the overnight lending rate at 6% on June 25.

In the recent policy-setting meeting, the Bangko Sentral ng Pilipinas (BSP) revised its forecast for average inflation this year to 2.1% from an earlier projection of 2.3%, while next year’s estimate has also been cut to 2.5% from 2.6%.

Both figures are now closer to the lower end of the BSP’s 2%- to 4% target for 2015 and 2016.

Inflation tempered further at 1.2% in June, as consumer prices moved at their slowest pace in two decades, thanks to sufficient supply of food and moderate price pressures in energy and oil rates, the Philippine Statistics Authority (PSA) reported July 7.

The June inflation of 1.2% defied analysts’ expectations that it would not go any lower than 1.6%, the record for May 2014, citing strong pressures from the probable impact of drought, poor agricultural harvest, and election-related spending in the coming months. (READ: Philippine inflation unlikely to go lower than 1.6%) –

Barclays image from Shutterstock