Philippine central bank to hold rates as inflation seen cooling further in January - Reuters poll

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02/01/2019 | 11:31 am
MANILA (Reuters) - The Philippine central bank looks certain to leave interest rates on hold for a second straight meeting on Thursday, with inflation expected to have slowed for a third straight month in January, a Reuters poll showed.

A poll of 10 economists produced a median forecast for January inflation of 4.5 percent, which if confirmed would be the slowest annual pace of price increases since April, when the rate was also 4.5 percent.

Inflation was 5.1 percent in December. The data will be released two days ahead of the central bank's policy decision.

The expected outcome would be within the central bank's 4.3-5.1 percent estimate for January, and is consistent with policymakers' view that inflation will gradually return to its 2-4 percent target range this year on lower oil and food prices.

Cooling inflation and the less-than-stellar fourth quarter performance of the economy give the Bangko Sentral ng Pilipinas (BSP) little reason to tweak policy rates, economists said.

The Philippine economy grew 6.1 percent in the last three months of last year, slightly faster than the previous quarter's 6.0 percent, but less than what the market had expected.

While the government is optimistic activity will gather momentum in coming quarters on strong domestic consumption, it has said the U.S.-China trade dispute and tighter financing conditions in emerging markets could be a dampener.

"We believe the focus at the upcoming BSP meeting will not be on further monetary tightening but rather on measures to support growth", said Noelan Arbis, economist at HSBC in Hong Kong.

All 10 economists in the poll expect the central bank to keep the rate on its overnight reverse repurchase facility steady at 4.75 percent for a second straight meeting on Feb. 7.

The central bank paused its tightening cycle in December to allow its five straight previous rate hikes, totalling 175 basis points, to work their way into the economy.

With inflation likely to become less of a worry this year, some economists believe the central bank could ease monetary policy this year to support growth.

This, they said, could come in the form of a reduction in the amount of cash that banks must hold as reserves and a cut in interest rates.

"BSP could start cutting its key policy rates and banks' reserve requirement ratio as soon as inflation rate goes back to the 2-4 percent target rate, which may happen as early as second quarter of 2019," said Michael Ricafort, an economist at RCBC bank in Manila.

The central bank slashed the reserve requirement ratio by a total 2 percentage points to 18 percent last year in line with its medium-term goal to bring it to single digit levels.

(Additional Reporting by Khushboo Mittal; Editing by Kim Coghill)

By Karen Lema

Thomson Reuters 2019
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