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Philippines: Inflation seen peaking at 7.4% in December 2018
MANILA, Philippines — Standard Chartered Bank expects the Bangko Sentral ng Pilipinas (BSP) to deliver two more rate hikes this year as inflation is expected to peak at 7.4 percent in December.
Chidu Narayanan, economist for Asia at Stanchart, said the central bank is expected to respond to higher inflation, breaching seven percent in the fourth quarter and peaking at 7.4 percent in December with two more interest rate hikes.
Narayanan said the BSP would likely raise the overnight reverse repurchase rate by 25 basis points in November and another 25 basis points in December, bringing the policy rate to five percent by end 2018.
The BSP has so far raised interest rates by 150 basis points to curb rising inflationary expectations arising from higher oil and food prices, weak peso, and the impact of the new tax reform law.
It lifted interest rates by 25 basis points for the first time in more than three years on May 10 followed by 25 basis points on June 20, 50 basis points – the biggest in a decade – last Aug. 9, and another 50 basis points last Sept. 27.
“We think BSP is keen to anchor inflation expectations, and will follow a 50 basis point rate hike in September with two more hikes in November and December. A further 50-basis point increase would take real rates closer to zero, but they would remain negative,” Narayanan said.
The BSP now expects inflation to exceed its two to four percent target this year and next year. Based on its latest assessment, it sees inflation averaging 5.2 percent this year and 4.3 percent next year.
Inflation averaged 4.8 percent in the first eight months after leaping to a fresh nine-year high of 6.4 percent in August from 5.7 percent in July. The BSP said inflation likely settled at 6.8 percent in September.
Narayanan said inflation likely settled at 6.8 percent last month as food inflation is expected to rise further in the near term on supply disruptions, exacerbated by Typhoon Ompong.
“September is usually harvest season in the Philippines. The impact of the typhoon is likely to weigh heavily on supply for the rest of this year,” he said.
Source: https://www.philstar.com/business/2018/10/05/1857327/inflation-seen-peaking-74-december-2018#8o2V5A97ut3vUe4H.99