2 more BSP rate hikes seen amid inflation ‘peaking’

London-based Capital Economics expects the Bangko Sentral ng Pilipinas (BSP) to hike key interest rates two more times this year even as it sees inflation peaking “soon.”

While headline inflation in September hit a fresh nine-year high of 6.7 percent, this “should start to drop soon,” Capital Economics said in an Oct. 5 report titled “Inflation in the Philippines to peak soon.”

“Food price inflation is likely to ease following government measures to boost the supply of rice. Meanwhile, even if oil prices remain elevated, oil price inflation will start to moderate over the next few months,” Capital Economics explained, referring to Administrative Order (AO) No. 13 issued by President Duterte last month, which removed nontariff barriers and streamlined administrative procedures in the importation of agricultural goods.

In a text message to the Inquirer on Friday, Socioeconomic Planning Secretary Ernesto M. Pernia said AO 13 likely already had an “initial impact” on September inflation, as the month-on-month rate slightly slowed to 0.8 percent from 0.9 percent in August.

Also, “the impact of previous tax hikes on items such as fuel, alcohol and high-sugar drinks will drop out of the annual comparison at the beginning of next year,” Capital Economics added, referring to the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

“But even if inflation does start to drop back, it is likely to remain above the BSP’s target for most of next year. And with the BSP worried about potential second-round effects, we expect two further rate hikes before the end of the year,” according to Capital Economics.

The BSP already jacked up the policy rate by a total 150 basis points (bps) in 2018, with back-to-back 50-bp hikes delivered in August and in September.

At end-September, the inflation rate averaged 5 percent, beyond the government’s 2-4 percent target range.

Last month, the BSP changed its 2018 inflation forecast to 5.2 percent from 4.9 percent previously, as well as its 2019 inflation outlook to 4.3 percent from 3.7 percent.