Philippines' central bank to stay 'accommodative'

That's amid analyst's forecast of 25bps rate hike.

According to DBS, the central bank (BSP) will be able to maintain accommodative policy in the short term amid a low inflation environment. Notably, the latest inflation print came in at just 3.4% YoY and this figure is actually skewed higher due to an increase in sin taxes.

Given the strong GDP growth trajectory and low inflation, the economy is still in the extended sweet spot that was prevalent since early last 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 performance against the greenback amongst Asian currencies last year.

While interestrate differentials are not the only factor affecting portfolio flows, the fact that inflation is low and that credit growth has been moderate imply less constraints on the BSP.

However, we still project relatively fast economic growth of 6% this year and some demand-pull inflation will materialize in the coming quarters. One 25bps rate hike has been penciled by the end of the year.

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