PH central bank to go for another 50 bps rate hike on Thursday

BENGALURU  – The Philippine central bank will likely opt for a half-point interest rate rise on Thursday to support a weakening currency and blunt its effect on imported inflation, a Reuters poll of economists showed.

Down more than 11 percent for the year, the Philippines peso is one of Asia’s worst-performing currencies. Its poor showing against the U.S. dollar, propped up by an aggressive Federal Reserve set to deliver another 75 basis point rise on Wednesday, has led to a record trade deficit and higher inflation.

To shore up the currency and tame inflation the Bangko Sentral ng Pilipinas (BSP) has already raised its policy rate by 175 basis points since May.

Over 60 percent majority of economists polled, or 13 of 21, expected a 50 basis point rise to 4.25 percent at its Sept. 22 meeting, compared with half of economists forecasting 4 percent in the previous poll. If realized, that would push the borrowing rate to the highest since August 2019.

Six now expected a quarter point rise to 4 percent, one predicted a jumbo 75 basis point to 4.5 percent, and a lone voice in the Sept. 13-19 poll expected no move from the BSP.

“The U.S. Fed’s aggressive moves at a time when the Philippines’ (balance of payments) is under pressure continues to exert pressure on the PHP,” noted Debalika Sarkar, economist at ANZ, referring to the peso currency.

“It is therefore conceivable that rate hikes will need to be more aggressive to minimize FX volatility and the passthrough to domestic prices.”

Over 75 percent, or 13 of 17, forecast the interest rate to be at 4.5 percent or higher by year-end – also the expected peak in this cycle – 50 basis points higher than in the previous poll. Eight said 4.5 percent, and four said 4.75 percent. The remaining four said 4.25 percent or lower.

Despite inflation dipping to 6.3 percent in August from July’s four-year high of 6.4 percent, analysts said it hasn’t peaked yet, leaving scope for further rate hikes. The central bank targets inflation at 2-4 percent.

“A forceful approach by the BSP to bring forward future rate hikes to the September meeting would not only reduce upside inflation risks but also cement the central bank’s credibility and commitment to bring inflation back to its target,” noted Han Teng Chua, economist at DBS Bank.