Suddenly Hawkish

PHILIPPINES - In Brief 20 Mar 2014 by Romeo Bernardo
The BSP took its cue from the US Fed and signalled today a prospective rate hike when the Monetary Board meets next week. The Fed earlier indicated that it may move forward the timetable for ending its stimulus program, with markets projecting a rate hike as early as April 2015 (from July previously). This afternoon, BSP Governor Amando M. Tetangco told the press that "early measured adjustments in monetary policy" would be "ideal" as "discrete movements would be less disruptive." The BSP has kept its key policy rates at 3.5% for borrowing and 5.5% for the lending since October 2012. Before the Fed statement, the consensus view was that a domestic policy rate hike will happen in 2H14 yet. Latest inflation, a below-forecast 4.1% in February as well as a significant reduction in the deferred power rate hike, actually supported this view. On the other hand, the BSP appears to be wary of increased volatility in global commodity prices brought on by recent geopolitical tensions and has earlier cited quicker money supply growth (38.6% in January from 32.7% in December for M3). In the first two months of the year, portfolio capital outflows totaled $2.2 billion.

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