MANILA: The Philippine central bank kept its benchmark interest rate steady on Thursday, as widely expected, even as it warned of a drag from El Nio and financial market volatility ahead.
With the economy expected to remain resilient, inflation trending up and outflow risks looming from high US rates, however, some economists say the central bank's next move may well have to be a hike later this year or next.
Southeast Asia's fifth-largest economy is among the region's fastest growing, with growth forecast above 6 percent this year, underpinned by higher government and private consumption in the run up to the May 9 presidential elections.
"We don't see the need at this point of either lowering interest rates or doing a reduction in reserve requirements," central bank Deputy Governor Diwa Guinigundo told reporters. "We are not in the same situation as the other countries. We have a growing economy, inflation is coming down," he added.
The Bangko Sentral ng Pilipinas voted to keep the overnight borrowing rate steady at 4.0 percent, where it has been since September 2014. It also kept the rate on its special deposit accounts (SDA) at 2.5 percent and the reserve requirement ratio at 20 percent.
All 10 economists in a Reuters poll had expected no change in policy settings.
HIGHER RATES, MAYBE
The consumption-led economy has managed to largely shrug off slowing global growth, as strong domestic demand and higher government spending cushioned the impact of weak exports, which are hurting many of its larger, trade-reliant Asian neighbours.
ING Bank economist Jose Mario Cuyegkeng sees the probability of a rate increase in the second half of the year as inflation will likely edge up in 2017 and the US Federal Reserve raises borrowing costs in the second semester.
Others said tightening could take place in the second quarter of next year or when growth has recovered sufficiently and inflation has risen enough to justify a rate increase.
Economists mostly agree the central bank will hold off any policy action until it has set in place the interest rate corridor system in the second quarter.
Central bank Governor Amando Tetangco warned of risks from El Nio and from commodity and financial market volatility and said they require "a careful balancing of policy levers, to minimise any unintended consequences of actions."
With a decline in oil prices keeping inflation at bay, the central bank slightly lowered its forecast for this year to an average 2.2 percent from 2.4 percent previously. But it kept its projection for inflation unchanged at 3.2 percent for 2017.
The central bank has a 2-4 percent annual target for 2016-2017.
Average inflation in 2015 was 1.4 percent, below target.
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