Bangko Sentral ng Pilipinas. (File photo / Philippine Daily Inquirer)
MANILA -Expectations that the Bangko Sentral ng Pilipinas (BSP) will not raise its policy rate again in May are gaining ground with Monetary Board (MB) member and Finance Secretary Benjamin Diokno chiming in while Fitch Solutions added their voice to those who are expecting an additional increase of 25 basis points (bps).
With the division firming up, the pause forecast is no longer an outlier with erstwhile lone voice Pantheon Macroeconomics joined by ING Bank and Goldman Sachs.
Miguel Chanco, Pantheon Macroeconomics’ chief economist on emerging Asian markets, said the BSP’s move last week to raise its key rate to 6.25 percent represented a slowdown from two previous increases of 50 bps or 0.5 percentage point each.
Chanco said the downshift was made possible by the slightly slower average 8.6-percent inflation in February, “which confirmed the peak of the headline rate in January.”
As expected, Monetary Board raises key policy rate to 6.25%
Latest rhetoric
And yet, this also happened last year—when the rate of increase in prices of goods and services that households commonly purchase—eased to 6.3 percent in August from 6.4 percent in July, only to jack up to 6.9 percent in September through to 8.7 percent in January.
“We maintain that [March’s rate] hike will be the last, a call bolstered by Gov. Felipe Medalla’s latest rhetoric [that] gave clear hints for a second-quarter pause,” Chanco said.
He noted that after last week’s policy meeting, Medalla “expressed a break from the past when the Monetary Board was more or less sure that the next policy rate meeting would be another increase.
“If we’re right about a pause at the BSP’s next meeting in May, then its next move likely will be a cut, in the fourth quarter at the earliest, when inflation returns comfortably within the target range [of 2 percent to 4 percent],” Chanco added.
Rates unchanged
Inflation movements to set policy rates, says BSP
Similarly, GoldmanSachs was hanging on to Medalla’s postmeeting words that in the absence of additional shocks, the BSP was likely to keep policy rates unchanged in May.
“Going forward, we currently do not forecast further policy rate hikes by BSP this year,” the American group said. “However, a materialization of further upside surprises to inflation may warrant additional tightening as it would further delay the return of inflation back within the target band.”
Diokno seems to lend strength to this outlook when he said over the weekend that he thought the BSP was leaning toward a pause in the next policy meeting on May 18.
The MB member, himself previously its chair, added that he believed the policymaking body has done enough.
“Monetary policy [rate hikes] is not the only game in town,” Diokno said. “Besides, as I mentioned earlier, monetary policy works with a long lag.”
Meanwhile, Fitch Solutions expects one more 25-bps rate hike in May considering that inflation will remain well above target until then, a view shared by Bank of the Philippine Islands and Japan-based Nomura.
BSP not yet done raising rates—Nomura
“Thereafter, we expect that economic weakness and a peak in US interest rates will set the stage for the BSP to leave the policy rate on hold at 6.5 percent for the rest of 2023,” it added.
Nomura also took a hint when the BSP said that with core inflation rising in February despite a modest decline in headline inflation, further monetary policy action was deemed necessary to address broadening price impulses emanating from robust domestic demand and lingering supply-side constraints. INQ