Philippines CB likely to stay on hold on concerns of global volatility

The Bangko Sentral ng Pilipinas (BSP) is expected to keep the policy rate unchanged at the monetary policy meeting this Thursday given the ongoing global market volatility and shaky risk appetite.

The central bank of Philippines is likely to keep the policy rate unchanged at 4.00 percent. Nonetheless, the PHP is likely to see some support in the aftermath of recent Fed policy meeting; the Fed is signaling a more muted pace of interest rate hikes this year.

Looking ahead, the imports release for April is also due this Friday. Imports increased by 11.7 percent y/y in March, with imports of capital goods surging by 24.1 percent y/y in March, and imports of consumer goods up 39.4 percent y/y in March.

By country of origin, imports from the United States declined by 3.7 percent y/y in March while imports from China were up 45.3 percent y/y. But the trade deficit widened to a balance of USD -1.7 billion in March. Imports are expected to increase by 17.0 percent y/y in April, while the consensus is for 20.0 percent y/y.

But weak external demand as well as a slowdown in remittances from Filipinos working abroad will limit the currency's strengthening. The exports data released earlier this month showed a decline of 4.1 percent y/y in April after -15.1 percent y/y in March, as exports of agricultural products fell by 10.3 percent y/y in April. But the remittances from Filipinos working abroad increased by 4.1 percent y/y in April to USD 2.2 billion after a decline of 1.2 percent y/y in March.

Meanwhile, last week, BSP governor Tetangco noted that a dovish Fed would support emerging markets including the Philippines. He also said that the central bank would consider the latest Fed's decision and assess the need to adjust the policy setting including the amount of liquidity to be siphoned off in future term deposit auctions.