The Bangko Sentral ng Pilipinas (BSP) may hike its key interest rates once more by 25 basis points in the remainder of the year to curb inflation expectations and ease the pressure on the exchange rate, a joint research by First Metro Investments Corp. and University of Asia & the Pacific projected.
“With eyes glued on the domestic front, the movements in inflation, exchange rates, and BSP policy rates will be of greatest importance,’ FMIC-UA&P said in a joint publication.
The research believes inflation will peak in August— moved from July, due to heavy rains in Luzon—and ease afterwards due to normalizing food prices, led by bigger rice harvests and importation, removal of supply bottlenecks caused by the monsoon rains, and downward-trending crude oil prices.
“Exchange rates will tend to be relatively stable since domestic interest rates have already risen and the BSP has readied its weapons against peso-dollar speculation,” the research said.
On monetary policy, the research said the BSP would likely increase policy rates by another 25 basis points in the second half “not only to tone down inflation expectations, but also to moderate the pressure on the exchange rate.”
The BSP’s last policy rate hike of 50 basis points to 4 percent, the research said, should take the heat off from inflation, interest rates and the exchange rate, especially since the central bank had expressed readiness to make further increases if needed.
Infrastructure and capital outlays should continue to expand at a rapid pace while durable equipment investments and manufacturing output shall remain robust, the research said.
As food prices normalize and crude oil prices recede, the research said faster gross domestic product (GDP) growth could be expected in the second half.
In the second quarter, Philippine GDP growth turned out to be “underwhelming” at 6 percent year-on-year versus 6.6 percent in the first quarter.