Philippines' GDP growth hit 7.2% in 2013

Expect the central bank to maintain a hawkish tone.

According to DBS, while the BSP is unlikely to alter its policy rate this week, expect the central bank to maintain a rather hawkish tone. GDP growth momentum remains relatively strong while inflationary pressures are set to be on the rise.

Indeed, GDP growth came in strong at 6.5% YoY in 4Q13, bringing overall growth to 7.2% YoY in 2013. Strong performance in manufacturing was very much encouraging, given that the sector has been lagging in recent years.

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Rapid growth in the construction sector remains a major factor that has been boosting GDP growth. This is probably one area where policy focus will be on for 2014. That the central bank is on course to avoid overheating of the economy is clear from its recent rhetoric.

The BSP signalled its intention to guard against inflationary risks and monitor external balances very closely. External funding concerns are manageable at this juncture, but the central bank has also been seen bolstering its USD holdings.

Monetary policy has been relatively loose in the past couple of years. Not surprisingly then, there is some space for adjustment this year. Higher interest rates paid on the special deposit account (SDA) are in the offing but the typhoon reconstruction efforts may prompt the BSP to stand pat on its policy rate for now.

Look for the BSP to move on interest rates in 2H 2014.