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Philippines: More economists expect BSP to hike rates sooner
MANILA, Philippines — More economists believe the Philippines is set to join the interest rate hike bandwagon as pressure for monetary tightening continues to grow.
In its Asia Macro weekly report titled “Rising Pressure to Jump on the Rate Hike Bandwagon,” ANZ Research economist Krystal Tan said rising domestic inflation is becoming difficult to ignore.
“It is getting increasingly difficult for Asian central banks to resist the accelerating global rate-hiking trend,” Tan said.
For one, Tan pointed out that inflation in the Philippines has exceeded the central bank’s two to four percent target range, while its trade balance is under pressure.
Inflation quickened to 4.9 percent in April, the highest in more than three years, from four percent in March. The consumer price index last month exceeded the BSP’s two to four percent target.
“Following the Reserve Bank of India, we expect the BSP to be among the next to bite the bullet and hike rates,” Tan said.
As part of its heavy lifting and COVID-19 response measures, the BSP aggressively slashed interest rates by 200 basis points and lowered the reserve ratio requirement in 2020.
Since its last 25-basis point cut in November 2020, the central bank’s Monetary Board has maintained an accommodative monetary stance by keeping the benchmark interest rate at an all-time low of two percent to allow the country to fully recover from the pandemic-induced recession.
BSP Governor Benjamin Diokno has hinted that the central bank is likely to keep interest rates on hold during its May 19 meeting and is likely to pull the trigger on June 23.
“Notably, BSP’s policy messaging has recently taken a hawkish turn, with the governor opening the door for a June rate hike,” Tan said.
ANZ Research is looking at an aggressive cumulative 125 basis points rate hikes by the BSP that will bring the overnight reverse repurchase rate to 3.25 percent by the end of the year.
It also expects the central bank to deliver another 50 basis points rate hike next year, bringing the benchmark rate to 3.75 percent.
Aris Dacanay, ASEAN economist at HSBC, said the pressure for monetary tightening in the Philippines is growing as headline inflation accelerated to 4.9 percent in April.
“With the policy rate of the BSP is still at its record-low of two percent since 20 November 2020, pressure for monetary tightening is increasing,” Dacanay said.
Dacanay added that last month’s increase was sharp and largely caused by global constraints in the supply-side as oil prices are still elevated while supply chain disruptions remain pervasive.
“Second round effects seem to be kicking in as well. Prices of commodities that directly use oil, such as electricity, gas, and transport, have increased, but other commodities are following suit,” Dacanay said.
The British banking giant still expects inflation to increase further in the coming months as supply-side constraints are not expected to disappear anytime soon.
Dacanay explained that the recent ban of palm oil exports by Indonesia would directly affect food prices.
As inflation accelerates further and the recent 50 basis points rate hike by the US Federal Reserve, Dacanay said the risk of the BSP normalizing rates earlier than the third quarter has increased.
Source: https://www.philstar.com/business/2022/05/08/2179470/more-economists-expect-bsp-hike-rates-sooner