Even after raising its key interest rates by a total of 150 basis points this year, the hawkish cycle of the inflation-targeting Bangko Sentral ng Pilipinas (BSP) may not be over yet as consumer price pressures persist, some economists said.
On Thursday, the BSP raised its overnight borrowing rate by another 50 basis points to 4.5 percent, as widely anticipated by the market, to curb rising inflation and inflation expectations.
“Although inflation is expected to slow down in the fourth quarter, the BSP may still be called to implement another round of rate hikes as inflation expectations remain elevated going into 2019,” ING economist Nicholas Mapa said in a research note dated Sept. 27.
“We continue to see risks that will make BSP raise interest rates again this year given its clear hawkish signals and its forecast that inflation could remain above target again next year,” Nomura economist Euben Paracuelles said in a commentary issued on Sept. 27.
The BSP aims to keep the inflation rate within a target range of 2-4 percent.
While domestic price pressures persistently come from the supply side, ING’s Mapa noted that the BSP had vowed to reduce volatility in the exchange rate to help anchor inflation expectations.
He also noted that the so-called second round effects in the form of wage increases and transport fare adjustment had been implemented.
“Hawkish comments from Deputy Governor Diwa Guinigundo were welcome as the BSP looked to demonstrate its commitment to achieve its target. Thus, it will be imperative for nonmonetary policy measures to help alleviate prices pressures as we approach the Christmas season, a crucial turning point ahead of the midterm elections in May,” Mapa said.
Barring any additional calamities, both natural and manmade, ING expects inflation to ease back to the BSP’s target range in the latter half of 2019.
Last week, the BSP also raised its inflation forecasts for the year to 5.2 percent from 4.9 percent. The forecast for 2019 was also raised to 4.3 percent from 3.7 percent for 2019, still breaching the target range.
“In line with our expectations, the policy statement was decisively hawkish. The BSP reiterated its strong commitment to achieving its price stability mandate,” Nomura’s Paracuelles said.
“In addition, it said it was ready to take further policy action even if it also emphasized that timely nonmonetary action will be needed,” he said.