BSP likely to keep all policy settings on hold at September meeting

The Philippines central bank, BSP, is likely to keep all its policy settings unchanged during its policy review meeting on Thursday, according to HSBC Global Research. The BSP stands out as a mainstay of stability amidst an environment of uncertainty surrounding monetary policy, especially in Asia.

The expected move of the BSP to remain on hold is driven by a confluence of a solid economic growth, which is likely to accelerate in 2017 after a pause in the second half of 2016, along with a sustained period of low inflation, in spite of several episodes of volatile weather and a sharp increase in government infrastructure spending, added HSBC.

Volatility has picked up throughout Philippines’ main asset markets. There have been considerable outflows from the equity market in the past month, but most of the excess liquidity in the financial market is from domestic banking sector, according to HSBC. Furthermore, the Philippine peso continues to trade in the comfort range of BSP.

Meanwhile, the country’s 2016 economic outlook continues to be on the path to outperform. After expanding 6.9 percent in the first half, the country’s GDP figures are expected to moderate in the second half because of base effects and dissipation of the election spending effect on the economic growth, said HSBC.

However, the expansionary 2017 budget implies that growth is likely to remain solid in 2017, owing to a sustained rise in investment. The second quarter BoP data released recently showed a razor-thin current account surplus of 0.1 percent of GDP. This affirms the view that the 2016 current account surplus is expected to further narrow to 1.3 percent this year and 0.9 percent next year from 2.6 percent in 2015. This is because of the sharp increase in capital goods import for infrastructure.

The BSP, recently released remittances data for July that indicated a severe contraction of 5.4 percent year-on-year, surpassing expectations of a 4.8 percent rise. Lately, remittances have become quite volatile due to increased financial regulations and risk aversion by banks along with the increase in unconventional methods of payments.

There have been continuous concerns regarding the status of the OFWs in the Middle Ease for quite some time, but the issues are focused in Saudi Arabia and involve a small subset of workers.

“OFW deployment has slowed this year and we continue to expect the trend of remittances to decelerate to 3.5% for 2016 and 2017”, added HSBC.