Philippines: More rate hikes expected as high inflation remains

• Aug 12, 2018

MANILA, Philippines — Despite raising policy rates by a cumulative 100 basis points (bps) or one percentage point in three months, the Bangko Sentral ng Pilipinas (BSP) can be expected to implement another rate hike by December and two more next year, said UK-based advisory firm Oxford Economics.

In a research noted issued Friday, Oxford said inflation is expected to average well above BSP’s target this year and about four percent in 2019.

On Thursday, the central bank raised its inflation forecast this year to an average of 4.9 percent from 4.5 percent announced in June on the back of higher jeepney fares, water rates, tobacco excise taxes and continuing effects of higher world oil prices.

For 2019, BSP revised its inflation forecast to 3.7 percent from 3.3 percent announced in June. For 2020, inflation is seen at 3.2 percent.

“With inflationary pressures broadening and upside risks manifesting themselves in elevated inflation expectations, this will require continued vigilance from the central bank,” said Oxford Economics.

“Accordingly, we expect the central bank to hike again in December and twice more next year,” it added.

Inflationary pressures contributed to the slowdown in the growth of economic output in the second quarter of the year to six percent, the slowest in three years. On the same day of the announcement of the second quarter growth figures, the BSP raised policy rates by 50 bps.

BSP Governor Nestor Espenilla. Jr. noted the need to promote price stability to attain the country’s economic growth target of seven to eight percent over the medium term and to prevent second-round effects from sustained supply-side pressures.

BSP also cited the need for non-monetary measures to “further mitigate the impact of supply-side factors on inflation.

Source: https://www.philstar.com/business/2018/08/12/1841698/more-rate-hikes-expected-high-inflation-remains#Lm5Sl2sp7Hz3VfXy.99