November BSP rate hike seen increasingly likely

MANILA  -Some analysts have made a definite call on a 0.25-percentage point hike in the Bangko Sentral ng Pilipinas (BSP) policy rate by Nov. 16 or even earlier after yet another higher-than-expected uptick of the inflation readout, which reached 6.1 percent in September.

BofA Securities, working with Philippine Equity Partners, said in a commentary they penciled in an increase to 6.5 percent as “there is not much relief” seen this month as far as inflation goes, considering the rise in jeepney fares.

The Land Transportation Franchising and Regulatory Board earlier this week announced a provisional fare hike of P1 across the country even as a petition for a P5-increase remained pending.

READ: Jeepney fares up by P1 starting Oct. 8 — LTFRB

The BofA team said that while transport appeared less of a pressure point in September as the increase in retail prices of fuel seemed to top out, the relief may be temporary as jeepney base fares are set to rise 8 percent this month.

“We believe the BSP will maintain its hawkish stance and hike its policy rate [by 25 basis points] to 6.5 percent at its Nov. 16 meeting,” they said.

“Depending on the outcome of the next [US Federal Reserve] meeting on [Nov. 2] and the October inflation print [that will be announced on Nov. 6], the BSP may even do an off-cycle hike ahead of Nov. 16,” they added.

Damaging to the economy

Socioeconomic Planning Secretary Arsenio Balisacan, however, warned that any additional hikes would be damaging to the economy and won’t work against inflation, arguing that most price pressures are coming from supply problems that higher borrowing costs cannot fix.

READ: Further policy tightening could hurt Philippine consumers -Balisacan

While he believes the economy can still absorb more tightening or rate hikes, Balisacan, not a member of the BSP’s Monetary Board, told a press conference that such a move would be “unnecessary.”

The BSP has been one of the most aggressive central banks in the region as the country battles above-target inflation. But for Balisacan, “this is not something to be proud of.”

“If I were in the Monetary Board, I would say no [to rate hikes],” he said. “The source of inflation is supply-side. It’s not the usual demand-side that requires monetary [policy] solution.”

Even then, the Nomura group believes that the significant increase in inflation in September “will likely now warrant a monetary response.”

READ: Inflation climbed up some more in September, says BSP

“We now forecast a 25-bp policy rate hike to 6.5 percent by BSP at its meeting on Nov. 16 and push the start of its cutting cycle to May 2024 instead of March,” the Japan-based group said.

DBS in Singapore said that the evolving trend brings doubt to the BSP’s confidence that monthly inflation print will return to the target range of 2 percent to 4 percent by end-year.

“Our base case is for a pause till year end but the odds of an intermeeting hike or at the scheduled review has increased after the September (inflation) release as well as pipeline risks of further adverse weather pushing by food inflation,” DBS said.

Echoing BofA, DBS added that the US Fed review of its policy in early November “might also sway the timing and likelihood of further tightening by the BSP. “

The Netherlands-based ING Bank is also anticipating a BSP policy rate hike, but says this would likely happen “in the near term.”

On the other hand, United States-based continue to expect BSP to keep its policy rate unchanged this year

However, the American group sees an increased risk of another 0.25-percentage-point] hike in November given the potential delay in headline inflation returning to the BSP target band.

READ: BSP chief ‘honestly’ eyeing November rate hike

Security Bank Corp. thinks that the inflation readout for September sets the stage for the BSP to potentially hike interest rates, possibly before the next scheduled policy meeting on Nov. 16.

The United Kingdom-based Pantheon Macroeconomics no longer sees rate cuts to happen within this fourth quarter, but neither expects fresh hikes.

In a statement, the BSP said inflation is expected to remain high in the coming months due to the continued impact of supply problems on food prices as well as the rise in global oil prices.

“The BSP stands ready to resume monetary policy tightening as necessary to prevent the renewed broadening of price pressures as well as the emergence of additional second-order effects” such as transport fare hikes and minimum wage increases, the central bank said.