ING expects rate hikes this year

MANILA, Philippines—The Bangko Sentral ng Pilipinas is seen to further raise the reserve requirement on banks and to hike policy rates within the year to preempt any adverse effects of growing liquidity in the economy.

Consequently, inflation is expected to remain benign in the short term, hitting a peak of 4.5 percent in the third quarter before easing in the succeeding quarters.

This is according to ING Bank, which said in a report that BSP—after raising the reserve requirement by 1 percentage point to 19 percent last month—could raise it some more this year by as much as 2 percentage points.

ING also sees the central bank increasing the key policy rates by as much as 50 basis points to 4 percent and 6 percent for overnight borrowing and lending, respectively.

There are no substantial price pressures at the moment, ING stressed, but the central bank is seen to make preemptive moves just to ensure inflation stays benign and volatility in the financial market is kept manageable.

The BSP targets inflation to remain within the 3- to 5-percent band this year. In the first two months of the year, inflation averaged at 4.2 percent.—Michelle V. Remo