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Philippines: Two more rate hikes likely before BSP pause
MONETARY authorities will likely raise key interest rates by 25 basis points (bps) next week and follow this up with an identical increase in March, an economist said on Monday.
The adjustments will be needed given still-high inflation, ING Bank Manila senior economist Nicholas Mapa said, after which the Bangko Sentral ng Pilipinas’ (BSP) policymaking Monetary Board will likely hit pause on its tightening.
“We expect BSP to hike by 25 bps at the February meeting and by another 25 bps possibly at the March 23 meeting given persistent price pressures,” Mapa told The Manila Times.
Although headline inflation is on the downtrend, “we zero in on high core inflation, and the fact that price pressures have spread to several items in the consumer price index basket,” he added.
Consumer price growth hit a 14-year high of 8.1 percent in December. Results for January will be released by the Philippine Statistics Authority today, February 7.
The BSP expects inflation to have hit 7.5 to 8.3 percent last month.
“Upward price pressures are expected to emanate from higher electricity rates, approved water rate rebasing, higher domestic petroleum prices, uptick in the prices of key food items and the annual increase in sin taxes,” the central bank said last week.
“Meanwhile, the reduction in LPG (liquefied petroleum gas) prices as well as the peso appreciation could contribute to easing price pressures for the month,” it added.
The median forecast in a Times poll of economists, meanwhile, was 7.6 percent. Pressure to keep raising rates will have eased, they said, but additional increases can be expected as inflation will likely stay above target this year.
BSP Governor Felipe Medalla told reporters last week that inflation would be the primary consideration when monetary authorities meet on February 16 and not that of matching the latest US Federal Reserve (Fed) rate hike.
The US central bank last week raised the Federal Funds Rate by 25 bps, smaller than previous increases, after inflation in the US slowed in December.
Mapa said that despite dovish comments from the Fed, the BSP policy rate would be increased to 6.0 percent this year from the current 5.5 percent, after which the Monetary Board would “consider pausing after the March meeting, followed by policy rate cuts should the Fed start cutting rates as well.”
Key BSP interest rates were raised by a total of 350 basis points last year as inflation breached the BSP’s 2.0- to 40-percent target and hit the government’s upwardly revised 2022 forecast of 5.8 percent.
This year, economic managers expect inflation to stay above target at 4.5 to 5.5 percent and only return to the 2.0- to 4.0-percent range in 2024.
Source: https://www.manilatimes.net/2023/02/07/business/top-business/two-more-rate-hikes-likely-before-bsp-pause/1877533