ING Bank bets BSP won’t raise rates

Bangko Sentral ng Pilipinas (File photo / Philippine Daily Inquirer)

With many analysts divided over whether the central bank to implement another rate hike on Thursday, Nov. 15, as an insurance policy against inflation, at least one foreign bank sees regulators holding off on another round of tightening due to moderating consumer prices.

In a statement to the press, the local unit of ING Bank said it expected authorities to “pause” its aggressive rate hike streak — which has totaled a cumulative 150 basis points since May — because of indications that domestic inflation is decelerating.

“We believe [the Bangko Sentral ng Pilipinas] will leave policy rates unchanged given that inflation is expected to return to target even without action on Thursday,” ING Bank senior economist Nicholas Mapa said.

“Despite the pause, we also see BSP retaining its hawkish stance, likely to indicate that it remains vigilant against any build-up in price pressures and that it stands ready to act if necessary,” he said.

Breathing room for the real economy

According to Mapa, this predicted “hawkish pause” will have a positive offshoot in that it affords the real economy some breathing room as, limiting the likelihood that growth would slow substantially with the Philippines looking to maintain its above-6-percent growth trajectory.

The inflation rate for October stood at 6.7 percent, which was unchanged from the previous month’s pace.

Economic managers have said that this likely marked the end of the steady acceleration in consumer price hikes that have plagued the Philippine economy since the start of the year and may be the inflection point that would lead to a downtrend and eventual normalization by next year.

The central bank only started to tighten its key overnight borrowing rate in May, but followed this with three more increasingly aggressive hikes, including two successive 50-basis point increases during the last two Monetary Board policy meetings, marking its most aggressive tightening streak since the administration of former President Joseph Estrada in 2000.

Non-monetary policy measures could slow down inflation further

Mapa said regulators could argue to pause on Thursday, as the need to anchor inflation expectations takes a backseat given that BSP’s forecast show that inflation will below 4 percent by mid-2019.

He pointed out that Deputy Governor Cyd Tuano-Amador also indicated that headline inflation can decelerate further if non-monetary policy measures are deployed effectively.

“The central bank is likely mindful of the sharp deceleration in its all-important consumption component with recent dovish undertones coming from up to three key voting members, indicating that they had ‘done quite a bit already’ [according to Monetary Board member Felipe Medalla] and that ‘if numbers prove helpful, we can afford to pause’ [according to Monetary Board member Bruce Tolentino],” he said.

On the other hand, the ING economist also acknowledged the opinion of market analysts who cited the need to anchor inflation expectations to close out the year, pointing to still elevated inflation and the inability for price pressures to dissipate quickly.

“Add to that recently implemented transport fare adjustment and wage increases, signaling the possibility of more pervasive price pressures given second round effects,” he said.

“The BSP Governor’s recent statement indicated that the BSP is weighing the ‘need to do at least one more modest rate hike to seal the deal and firmly anchor inflation expectations’,” he added. /atm