Monetary authorities are expected to keep policy rates unchanged when they meet Thursday, as the rate of consumer price increases eased last month, according to the DBS Group.
Even then, the Singapore-based group said in a new research note that another 25 basis-point hike later this year—which would be third such step for 2011—“cannot be ruled out.”
DBS said the Bangko Sentral ng Pilipinas would be in no hurry to raise rates despite inflation having reached a 26-month high in June.
The group noted that the annual inflation rate fell to 4.7 percent (based on 2006 prices) in August from 5.1 percent in July, giving the BSP leeway to adopt a wait-and-see attitude amid the current economic slowdown.
“A rate hike (today) is unlikely,” DBS said. “(But) one more 25-bps rate hike later this year, which would take the overnight borrowing rate to 4.75 percent, cannot be ruled out.”
“It is still on the table, as base effects will make annual inflation rates rise again in the next couple of months and policy rates are still low relative to the 5.09 percent 10-year average inflation,” it added.
DBS said that as long as the growth outlook remained positive, the BSP should continue to normalize policy rates.
In a separate research, HSBC said the Monetary Board could afford to keep rates on hold until the second quarter of 2012, revising its previous forecast of several more rate hikes within this year.
“There is still the issue of reserve requirement ratio (RRR) hikes, of course, which the BSP has recently started to deploy,” HSBC said.
“Even here, we don’t expect any move for now, although liquidity remains ample in the banking system and officials should be keen to ultimately lock most of this up for good,” it added.
The bank said that high portfolio inflows had been a concern for the Philippines, as reflected in the most recent 100 basis-point hike of the RRR to drain liquidity.
The BSP increased the required reserve ratio for banks in the country thrice so far this year.
“Given the still ample amount of liquidity in the Philippine financial system, the BSP may push up RRRs further at some stage even if, at 21 percent, these are already unusually high by international standards,” HSBC said.