MANILA -The Bangko Sentral ng Pilipinas (BSP) is expected to raise its policy rate by 0.25 percentage point to 6.5 percent anytime soon, but the government may show some resistance based on concerns about how further hikes could adversely affect the prospects of an already slowing growth of the domestic economy.
“We are penciling in a 25-basis-point rate hike as the BSP attempts to safeguard the 2024 inflation path,” according to ING Bank senior economist Nicholas Mapa.
Mapa was reacting to statements made by BSP Governor Eli Remolona Jr. on Tuesday that point to an off-cycle rate hike.
Remolona said the rate increase could happen as early as Oct. 26, which is three weeks before the next policy meeting of the Monetary Board (MB) set for Nov. 16.
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In a research note, DBS Bank said the BSP has consistently reiterated its hawkish bent in recent days, adding that it is monitoring evolving inflationary risks.
Citing the minutes of the MB’s policy meeting in September, DBS said policymakers highlighted the risk that the inflation target might be breached for a third consecutive year in 2024.
Also, DBS noted that the Philippine peso has depreciated 2.75 percent against the dollar since July. On Oct. 25, the peso closed trading at 56.86 against the US dollar.
READ: DBCC hikes 2023 inflation projection to 5-7%
“The double whammy of a weak currency and disruption to the disinflation process has raised the risk that the BSP will act to tighten policy sooner rather than later,” the Singapore-based bank said.
“That said, after pursuing the most aggressive monetary tightening cycle of a cumulative 425-bp amongst Asian countries under our coverage, there is likely to be resistance from the government amid caution over a lagged detrimental impact on growth,” it added.
Arsenio Balisacan, Secretary of the National Economic and Development Authority, earlier this month expressed disagreement with further monetary policy tightening.