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Philippines: BSP seen hiking rates by 100 bps this year
MANILA, Philippines — The Australia and New Zealand Banking Group Ltd. sees the Bangko Sentral ng Pilipinas (BSP) hiking rates by a total of 100 basis points this year amid a long drawn monetary policy tightening to tame inflation.
In a report, ANZ said the BSP may deliver another 50-basis-point hike today followed by two 25-basis-point hikes in March and May.
This will bring the benchmark interest rate to 6.50 percent instead of the previous forecast of six percent for this year.
“Combined with our inflation forecast, this translates into a real policy rate of 1.4 percent – signaling further room for monetary policy tightening if inflation remains more stubborn than anticipated,” ANZ said.
The central bank raised key policy rates by 350 basis points, bringing the overnight reverse repurchase rate to a 14-year high of 5.50 percent last year from an all-time low of two percent to tame inflation and stabilize the peso.
ANZ said inflation blew past expectation to hit a fresh 14-year high of 8.7 percent in January from 8.1 percent in December as food prices continued to accelerate, reflecting persistent supply-side glitches in the domestic market aggravated by weather-related disruptions.
“January’s inflation print also confirms how broad-based the price pressures are. Our diffusion index shows that a higher number of items in the consumer price index basket registered monthly price increases in January compared with December,” it said.
According to ANZ, food inflation may continue to rise at least until February, driven by La Niña.
The investment bank said inflation could accelerate further and peak either in February or March this year.
“Even if inflation starts to descend from its peak, it will remain at elevated levels in the second and the third quarters. Any meaningful decline is only possible when domestic demand weakens and favorable base effects kick in. We expect headline inflation to fall back within the two to four percent target range only in the fourth quarter of 2023,” ANZ said.
Inflation accelerated to 5.8 percent last year, exceeding the BSP’s two to four percent target range from 3.9 percent in 2021.
“Our revised 2023 full-year inflation forecast is now at 5.1 percent year-on-year, from 4.3 percent year-on-year previously,” ANZ said.
After factoring in the current direction of inflation and all upside risks, ANZ now believes that the central bank would need to extend its tightening cycle to May 2023.
Source: https://www.philstar.com/business/2023/02/16/2245200/bsp-seen-hiking-rates-100-bps-year