Oct inflation levels rather than drop, prompts calls for another BSP rate hike

The central bank will assess whether another rate hike is needed this month to cap rising consumer prices after government data showed the inflation rate plateauing, but still at a high level.

In a statement, Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla Jr. said the average increase of prices of goods and services for October of 6.7 percent – unchanged from September’s level – “supports the view that inflation pressures are finally moderating.”

“The Monetary Board will take into account these and other incoming data including gross domestic product [growth] at its next policy meeting when it determines if there’s still need for further policy rate adjustments,” he said, striking a more dovish note than in previous statements.

The market, however, viewed the flat month-on-month inflation rate as an indication that another modest rate hike may come when the BSP’s policy making body convenes next week to decide on the direction of interest rates.

“Given that inflation has not been able to show a substantial deceleration trend, the likelihood of that “moderate” rate hike at the Nov. 15 meeting has increased,” ING Bank senior economist Nicholas Mapa said.

Because of this the peso – which has been strengthening steadily since the last rate hike in late September – “should continue to benefit from structural as well as capital flows in the coming week coupled with BSP’s hawkish bias of late,” he said.

The ING Bank economist predicted that the central bank would hike interest rates by another 25 basis points before the year ends.

So far, the BSP has raised interest rates by a total of 150 basis points this year having started gradually in May, after insisting earlier that the inflation rate would correct itself without need of policy intervention.

Espenilla said October’s consumer price index represented “a significant deceleration, although the headline figure remains elevated.”

“Second round effects are also muted so far,” he added, saying this augured well for a return to the central bank’s inflation target range of 2-4 percent by 2019. /kga