BofA: BSP may end rate-hike cycle in Aug

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may deliver one final rate increase this month before bringing its tightening cycle to a close, Bank of America (BofA) said, as it expects economic growth to remain weak through the end of the year.

In a note to clients on Tuesday, Jojo Gonzales, a research analyst at Bank of America, said the central bank could raise its benchmark rate by another half a percentage point at its Aug. 27 policy meeting, potentially marking the final move in a rate-hiking cycle that began in April.

READ: Anemic GDP seen to temper rate hikes

Bank of America maintained its growth forecasts of 2.5 percent for this year and 3.5 percent for next year. Gonzales said the economy’s performance in the first half was broadly in line with the bank’s outlook and that the subdued pace of growth was likely to persist through the rest of the year.

While lower fuel prices and higher minimum wages could eventually support business activity and consumer spending, their impact may not be felt until late in the year, Gonzales said.

“Indeed, we think receding prices of fuel and a hike in minimum wages may be positive for industrial activity and consumption, [but] these may not become apparent growth drivers until late in the year,” he said.

The central bank has raised its benchmark interest rate by 50 basis points since April, bringing the key policy rate to 4.75 percent. The moves were aimed at keeping inflation expectations under control even as the economy began to lose momentum.

Now the BSP faces a more difficult choice: How to contain inflation without putting further strain on an anemic economy.

READ: Remolona sees ‘little chance’ of aggressive interest rate hikes

The economy expanded just 2.3 percent in the second quarter, according to government data released last week. It was the weakest quarterly growth rate in 16 years outside the pandemic, putting the Marcos-administration’s target of 3.5 percent to 4.5-percent growth this year increasingly out of reach.

Inflation, meanwhile, has begun to ease but remains well above the central bank’s 3-percent target. Consumer prices rose 6.2 percent in July from a year earlier, extending a three-month slowdown as transport costs eased. Core inflation, which excludes volatile food and energy prices, also moderated to 4.2 percent from 4.4 percent in June.

The weaker economic data have fueled expectations that the central bank could slow its rate increases or pause them altogether. INQ