BSP seen raising rates again this week

With inflation pressures slightly easing, the Bangko Sentral ng Pilipinas (BSP) is expected to raise key interest rates by only 25 basis points when its policymaking Monetary Board meets on Thursday, London-based Capital Economics said.

“While it is a close call, we expect the Philippines’ central bank (BSP) to hike rates again (this) week in order to keep inflation expectations in check. GDP [gross domestic product] data released this week showed an economy losing momentum—growth was at its slowest for over three years in the third quarter. The BSP has already tightened policy by 150 basis points this year and will be cautious about putting the brakes on too hard,” Capital Economics said in a Nov. 9 report titled “Another hike more likely than not.”

Last week, the government reported that GDP growth slowed to 6.1 percent year-on-year during the July-to-September period as consumers tightened their belts amid high prices of basic commodities.

“Worries about inflation mean the BSP will probably raise interest rates again on Thursday’s meeting. Headline inflation in October was unchanged at a nine-year high of 6.7 percent year-on-year. And while inflation is likely to fall over the coming months, it is likely to remain above the BSP’s 2-4 percent target range until late 2019. A rate hike should help to guard against second-round effects,” Capital Economics said.

“As such, we have pencilled in a 25-bp rate hike for [this] week. This would, however, be smaller than the 50-bp hikes at the BSP’s previous two meetings. Further ahead, policy is likely to depend on whether inflation does indeed begin to fall back,” Capital Economics added.

Amid elevated inflation, the BSP already raised interest rates by 150 bps so far this year such that the key policy rate currently stands at 4.5 percent.

Latest government data showed that the month-on-month increase in headline inflation further eased to 0.3 percent in October from 0.8 percent in September and the peak so far this year of 0.9 percent in August.

This meant that while consumer prices still rose last month, they were not as fast or as high as last September’s increases.

To recall, the government issued orders in September aimed at easing importation of food products to boost supply and bring down prices. As such, the year-on-year increase in prices of food and nonalcoholic beverages slightly slowed to 9.4 percent in October from 9.7 percent in September.

Prices of rice and fish inched up, but those of corn, meat, fruits and vegetables declined that month.

As of end-October, the inflation rate averaged 5.1 percent.