The Central Bank of Philippines likely to hike rates in Q2 17

Bangko Sentral ng Pilipinas for the eleventh consecutive time kept its policy rate unchanged at 4.00%, in line with market consensus. It also left the SDA rates and reserve requirement ratio unchanged at 2.50% and 20% respectively. The central bank sounded confident on its policy stance, indicating that the growth and inflation risk rise from hikes in utility prices and poor weather conditions.

The central bank lowered its inflation forecast by 20bp to 2.2% for this year, however, it kept a higher projection at 3.2% for the next year. Moreover, inflation is likely to fall within the central bank's target during 2016- 2017.

"We continue to expect the next policy move to be a hike, but with growth likely to show a modest slowdown (2016F: 5.5%), we see BSP hiking rates only in Q2 17. This expected hike is also only likely to materialise if growth has recovered sufficiently and inflation is high enough to justify an increase in rates. Although there is external uncertainty in the form of a slowing global economy, we think the Philippines' strong external position and low level of short-term debt provide the BSP with enough policy space to maintain an accommodative stance."says Barclays in a research note