UBS expects increase in BSP rates next week

UBS Securities has added its voice to market watchers expecting the Bangko Sentral ng Pilipinas to raise its policy rates by 25 basis points when the Monetary Board meets next week.

The Switzerland-based investment research firm said in a research note that the lower-than-expected inflation puts less pressure on the central bank to raise rates aggressively.

The National Statistics Office reported earlier this week that consumer prices rose 4.5 percent year on year in May, which was on the lower end of the BSP’s forecast.

Such inflation rate also “reassures investors that the BSP is not late in raising policy rates,” said research author and UBS economist Edward Teather.

Teather said he was expecting a 25-basis point increase in the BSP’s policy rates on June 16 and maintains that “a preemptive policy normalization” with further tightening of 50 basis points in the second semester.

This would bring the BSP’s overnight borrowing rate to 4.75 percent and overnight lending rate to 6.75 percent within this month.

“Evidence that the BSP is prudently tightening policy in the context of lower-than-expected inflation should be positive for the peso,” Teather added.

In an earlier note, Teather said a continually growing domestic economy “will leave monetary policy settings fairly easy but could give some support to the peso as the BSP’s rate hikes have lagged those elsewhere in the region as a result of benign inflation pressures.

In a separate research, Standard Chartered Bank said the BSP was expected to raise its policy rates by 25 basis points next week amid anticipation that inflation would peak in the next few months.

“We believe inflation expectations are yet to be anchored and are still vulnerable to commodity-price volatility,” Standard Chartered said.