BSP seen keeping rates steady; SDA rate cut possible
MANILA - The Philippine central bank is expected to keep its benchmark interest rate steady at a record low on Thursday, but there is a chance it may further cut the rate on its special deposit account (SDA) facility to curb the peso's strength.
All 10 economists in a Reuters poll expect the Bangko Sentral ng Pilipinas (BSP) to leave its overnight borrowing rate unchanged of 3.5 percent for a third meeting in a row.
With inflation forecast to stay within target and economic growth expected to remain strong this year, most economists believe the central bank will stand pat on rates until the end of the first half of 2013. The poll estimated the rate would rise to a median 3.75 percent by the end of the year.
"With no growth or inflation worries in the immediate term, BSP has focused its attention on handling portfolio inflows that have resulted in the peso turning in one of the best performances against the greenback among Asian currencies last year," said Eugene Leow, economist at DBS in Singapore.
But some economists said a cut in the interest rate the central bank pays on its short-term special deposit account cannot be ruled out at the March 14 meeting, as policymakers have said there is room to adjust the rate with inflation expected to remain benign.
Annual inflation quickened to 3.4 percent in February, the fastest since September, but stayed well within the central bank's 3 to 5 percent target band, supporting views inflation will be well-behaved this year.
The central bank has lowered the SDA rate by a total of more than 100 basis points in the six months to January to encourage banks to lend more to consumers and discourage dollar flows that have pushed the peso to become Asia's second-best performing currency last year.
By bringing down the SDA rate to the current 3.0 percent for all SDA tenors ranging from one week to a month, the move will also lower the monetary authority's sterilization costs.
Funds placed with the SDA window totalled P1.86 trillion ($46 billion) in the week ending Feb. 15, down from a record P1.9 trillion in September, according to latest central bank data.
"The central bank has talked about setting up a (interest rate) corridor in the medium term and also about the corridor rates being unsymmetrical right now. This implies either a cut in the SDA or a reduction in the repo rate. We think SDA cut is more likely," said Vaninder Singh, economist at RBS in Singapore.