Another hike in Bangko Sentral ng Pilipinas rates seen before yearend

November 07, 2018

Economists seem to agree that another upward adjustment in the Bangko Sentral ng Pilipinas' (BSP) key rates in November is very likely even if inflation has shown signs of easing, citing the need to still anchor inflation expectations.

BSP’s policy-making Monetary Board (MB) will have its seventh-rate setting meet for this year on November 15.

In a report released Tuesday, ING Bank NV Manila Branch Senior Economist Nicholas Mapa said monetary officials remain “vigilant against any signs of second-round effects and will look to anchor inflation expectations going forward.”

This, even as rate of price increases last October is steady at 6.7 percent from the previous month’s level. Average inflation to date is 5.1 percent, up from the end-September’s 5 percent.

The government’s inflation target from 2018-20 is a range between 2 and 4 percent.

MB has increased the central bank’s key policy rates by a total of 150 basis points this year alone due to the elevated inflation rate.

To date, the BSP’s overnight reverse repurchase (RRP) rate is 4.50 percent.

Citing BSP Governor Nestor A. Espenilla Jr.’s statement for a “moderate” policy adjustment, Mapa said a 25 basis points increase in the central bank’s key rates is possible before the end of the year.

“Given that inflation has not been able to show a substantial deceleration trend, the likelihood of that “moderate” rate hike at the 15 November meeting has increased,” he said.

Mapa said inflation remains elevated but the October 2018 print validates expectations that it has either “close to or had peaked for the year.”

“(It) is now expected to taper off slowly going into the year-end,” he said, noting that “measures undertaken by the government to address supply chain bottlenecks appear to have found their way to tag prices, alleviating some pressure on food prices.”

He, on the other hand, cited that “inflation remains sticky given supply constraints.”

Meanwhile, the economist added that “the peso should continue to benefit from structural as well as capital flows in the coming week coupled with BSP’s hawkish bias of late.”