Economists say that the Bangko Sentral is likely to hike policy interest rates again within the year, should current inflation pressures remain.
In a report, ING Bank Manila Senior Economist Joey Cuyegkeng said another key policy rate hike is likely to happen sometime in the fourth quarter, after the Monetary BoarD raised interest rates by 25 basis points on Thursday in a bid to temper rising inflation pressures.
“The central bank did not disappoint and raised policy rates by 25 bps and revised inflation forecast, but we’re unlikely to see another one before the fourth quarter. Further hikes are likely if upcoming data and developments indicate inflation remains elevated above the target range for an extended period of time,” Cuyegkeng said.
The same sentiments were echoed by IHS Markit Chief Economist Rajiv Biswas.
“Due to rising inflation pressures, IHS Markit expects the BSP to hike policy rates at least once more during 2018,” Biswas said in an e-mail. He said a modest policy tightening is not expected to be a significant brake on the country’s economic momentum, which grew 6.8 percent in the first quarter of 2018 amid high inflation rates in January to March period.
The IHS Markit economist noted that the key risk in inflation outlook in the country is the rising geopolitical tension in the Middle East, which could push up world oil prices. “If world oil prices rise significantly above USD80 [per barrel] for Brent crude, this could push up inflation pressures and force the BSP to hike policy rates more than currently expected by financial markets,” added Biswas.
On Thursday, BSP Governor Nestor Espenilla Jr. said the MB’s decision to hike overnight reverse repurchase facility to 3.25 percent and overnight lending and deposit facilities to 2.75 percent is a timely action, and “will avoid the necessity of further stronger action down the road”.
Likewise, the central bank raised inflation outlook to 4.6 percent in 2018 and 3.4 percent for 2019. Previous inflation projection of the BSP was at 3.9 percent and 3 percent for this year and next year, respectively.