Economists eye 50-bps hike in BSP rates

September 10, 2018

Several economists are projecting another hike in the Bangko Sentral ng Pilipinas’ (BSP) key rates this September after inflation surged to nine-year high in August 2018 to 6.4 percent.

In a research note, ING Bank Manila senior economist Joey Cuyegkeng said an “aggressive monetary policy action” is again needed even as the central bank has raised key rates by a total of 100 basis points to date.

This, after the inflation rate last month surpassed all projections, including central bank’s 5.5-6.2 percent band.

Inflation in August was driven by the faster rate of price increases of food items due to supply-side issues, the alcoholic beverages and tobacco index due to higher sin taxes, and the transport services because of higher prices of oil.

Cuyegkeng forecasts sustained elevated inflation rate, “with next month’s inflation rate likely to remain above 6 percent and full-year average inflation at 5.1 percent.”

These figures are higher than the 2 to 4 inflation percent target set by the government until 2020.

The economist said that although price pressures are expected to decelerate as government implements various measures to address supply-side issues “the impact of second-round effects would still have to be reflected in production costs and retail prices.”

He, thus, stressed that the BSP “needs to contain run-away inflation expectations and demand pull pressures.”

“The chances of another aggressive monetary policy action have increased as inflation has surged. Another 50 basis point policy rate hike at the 27 September meeting is a real possibility,” he added.

Meantime, Landbank market economist Guian Angelo S. Dumalagan said they are revising their forecast from steady BSP rates until the end of the year to a 50 basis points increase when members of the BSP’s policy-making Monetary Board (MB) meet late this month.

In a market report, he explained that their earlier expectation for an unchanged policy rates until end-year was due to expectations that inflation will peak in the third quarter and start to decelerate thereon.