Steady Policy

PHILIPPINES - In Brief 26 Feb 2015 by Romeo Bernardo

As the US Fed struggles with the language of its forward guidance, keeping markets on their toes, the BSP Governor has stated that any interest rate hike on its part need not be "in sync with the Fed" on both timing and size of adjustment. This jibes with our baseline read that local policy rates will likely stay put this year. We also note that other analysts have started to shift their policy rate outlook to neutral, with the March 2015 Consensus Forecast poll showing the median expectation falling to 4% from 4.25% in February and 4.5% late last year.

We continue to think that at this time, given a benign inflation outlook, there is as much chance of a rate hike as a rate cut. The former would hinge on the speed and magnitude of capital outflows following any Fed rate hike while the latter would depend on the reverse, i.e., capital inflows attracted to the Philippine's positive economic fundamentals, leading to a strengthening peso amidst risk of global "currency wars".

Hot money inflows have been net postive in the three months to January, with the peso appreciating during the period, trading within P44 to P44.50/$ in past weeks. The next Monetary Board meeting will be on March 26.

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