Tighter monetary policy expected

Monetary authorities are expected to tighten policy rates at their next meeting this week, with some analysts saying the central bank may yet again turn to alternative tools to keep inflation in check.

Banks polled by the Inquirer were nearly unanimous in saying another hike in benchmark interest rates may take place this Thursday. This came as the rate of consumer price increases stayed elevated at 4.9 percent in August, matching July’s level, which at the time was the highest in 33 months.

Core inflation—which strips out movements of products subject to volatile price swings—reached a 17-month high in August.

With this, several banks also noted the possibility of adjustments in macroprudential policy tools, namely yields on special deposit accounts (SDA) or deposit reserve requirements for banks.

Seven of eight banks this month said the Bangko Sentral ng Pilipinas (BSP) would hike policy rates would be hiked by at least another quarter of a percentage point. This would bring the BSP’s overnight borrowing and lending rates at 4 and 6 percent, respectively.

Australia’s ANZ bank was an outlier after saying the BSP would likely hold off on another hike in policy rates, instead opting for an increase in SDA yields. Dutch financial giant ING similarly said adjustments in either SDA rates or reserve requirements should be expected.

“In light of the BSP’s 15-24 months of monetary policy transmission lag, we believe that the window to keep the SDA rate low at 2.25 percent has closed,” ANZ said in a note to investors.

Bank of the Philippine Islands, Citi and BDO Unibank all see the BSP rates on the overnight borrowing and lending, and the SDA facilities, rising. Metrobank, Singapore’s DBS, and Barclays see adjustments in just the policy rates.

BSP Governor Amando M. Tetangco Jr. said the central bank would consider the rise in core inflation to 3.4 percent in August from 3 percent the month before, as well as other external and local developments.

He said the BSP would see “if there is need to make further adjustments to policy settings so as to keep inflation expectations well-anchored.”

Inflation had averaged at 4.4 percent since the start of the year, moving closer to the top end of the BSP target range of 3 to 5 percent. Next year, the inflation target moves down to a lower range of 2 to 4 percent, heightening the need for officials to keep a lid on consumer prices early.

At its last four meetings, the policymaking Monetary Board has moved to keep settings more restrictive. In April and May, banks were ordered to set aside more of their clients’ deposits as reserves. June and July saw hikes in SDA and policy rates as the BSP moved to mop up more liquidity and keep inflation expectations “anchored.”