Thailand
Philippines: BSP likely to keep rates on hold next week
MANILA, Philippines — DBS Bank Ltd. of Singapore and Japan’s Nomura expect the Bangko Sentral ng Pilipinas (BSP) keeping interest rates steady and ending its tightening cycle amid the downtrend in inflation that eased to an eight-month low of 6.6 percent in April from 7.6 percent in March.
Chua Han Teng, economist at DBS, said that some members of the central bank’s Monetary Board have started to signal the possibility of a pause in the upcoming rate-setting meeting on May 18.
“The BSP’s rhetoric regarding future monetary policy decisions has shifted of late. We now expect the BSP to pause at its May meeting, given the shift in tone and faster-than-expected softening inflation trend since February 2023,” Teng said.
To tame inflation and stabilize the peso, the BSP has raised key policy rates by 425 basis points since May last year. This brought the benchmark interest rate to a 16-year high of 6.25 percent from an all-time low of two percent.
This helped cool inflation for the third straight month in April after likely peaking at 8.7 percent in January. It averaged 7.9 percent in the first four months of the year, well above the BSP’s two to four percent target range.
“The BSP is likely to judge that the policy rate is tight enough to tackle inflation after 425-basis-point cumulative hikes since May 2022 to 6.25 percent, but any pause would be hawkish,” Teng said.
Teng said that commentary from the meeting is likely to revolve around being flexible on future decisions based on incoming data, given that headline inflation, although cooling, remains above the BSP’s two to four percent inflation target band.
“We think policymakers are likely to be comforted by cooling inflation, which came in the lower half of their monthly forecast ranges over February to April 2023. In year-on-year terms, headline inflation has eased from January 2023’s peak due to the moderation in food and energy prices and high base comparison a year ago,” Teng said.
While core inflation has been higher than the headline rate, the DBS economist said it is showing tentative signs of topping out.
“The price pressure deceleration is not only just from base effects, with month-on-month seasonally adjusted inflation also coming off. Headline inflation has hit the zero month-on-month rate for two straight months as of April, and core inflation has also trended down month-on-month,” Teng said.
Euben Paracuelles, Southeast Asia economist at Nomura, said they have removed their previous forecast of additional 50-basis-point hikes as headline inflation was lower for the second month in a row in April.
“With sequential inflation momentum falling, we now expect the BSP to stay on-hold this year, instead of hiking by another 50 basis points,” Paracuelles said.
Nomura also lowered its headline inflation forecast for this year to 5.3 percent from 5.8 percent as well as its core inflation projection to 5.7 percent from 5.9 percent.
Source: https://www.philstar.com/business/2023/05/10/2265059/bsp-likely-keep-rates-hold-next-week