Poll: BSP seen raising rates again

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is expected to raise interest rates again later this week as inflation remains stubbornly high, forcing policymakers to weigh the need to curb price pressures against signs of weakening economic growth.

All 20 economists polled by the Inquirer expect the BSP to tighten monetary policy at the Monetary Board’s Oct. 22 meeting.

READ: Red hot inflation seen extending BSP hikes

Eighteen forecast a quarter-percentage-point increase, while the other two expect a more aggressive half-point hike.

The central bank’s benchmark interest rate, which influences how banks price loans, stands at 5 percent.

The BSP has raised it by a total of 75 basis points since April, as war in the Middle East drove up global oil prices, putting pressure on net energy importers such as the Philippines and weighing on their currencies.

Higher interest rates make borrowing more expensive, discouraging households and businesses from spending and investing.

By cooling demand, the BSP aims to ease pressure on prices and prevent too much money from chasing too few goods. But tighter monetary policy can also weigh on economic activity, which grew by just 2.6 percent in the first half of the year.

Inflation surged to a three-year high of 7.2 percent in September, far exceeding market expectations, as elevated oil prices compounded food supply disruptions caused by heavy monsoon rains.

READ: BSP tipped to pause rate hikes this month

Although much of the price pressure stems from supply constraints, economists say the BSP must keep inflation expectations in check to prevent a broader cycle of rising prices and wages.

Nicholas Mapa, chief economist at Metropolitan Bank & Trust Co., said the BSP was expected to maintain a measured pace of monetary tightening and avoid what he called “overzealous” rate increases.

“[The] BSP [is] also mindful of inflation expectations but they remain cognizant that monetary policy is less effective against supply side pressures,” Mapa said.

Aris Dacanay, senior Asean economist at the Hongkong and Shanghai Banking Corp. Ltd., said there was a risk that the BSP’s rate-hiking run could extend into the first half of 2027.

“Yes, growth continues to sputter. But the risk of inflation breaking out of its cage is too large to ignore,” Dacanay said. “[This] week is unlikely to mark the end of the BSP’s tightening cycle.”

When the BSP raised rates in August, Gov. Eli Remolona Jr. described the move as a “preemptive” response to risks stemming from the ongoing El Niño episode and wage increases. Last week, Remolona said policymakers were bracing for the possibility of a “Godzilla” dry spell.

Pressure on the peso adds another complication. A hawkish US Federal Reserve has bolstered the dollar, weighing on currencies including the Philippine peso, which weakened beyond 63 per dollar for the first time last week.

Emilio Neri, lead economist at Bank of the Philippine Islands, said the size of this week’s rate increase would likely depend on the peso’s performance in the coming days. If the currency weakens toward 64 per dollar, the BSP could opt for a half-percentage-point increase, he said.

“A larger hike could also be presented as a pre-emptive move against second round effects and the rapid de-anchoring of inflation expectations, especially ahead of the potential supply shock from El Niño,” Neri said. “Regardless of whether the BSP delivers a 25 or 50-basis point hike [this] week, the balance of risks increasingly points to further tightening in the next six months.”

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., said a larger rate increase could help anchor inflation expectations amid what he called “a series of unfortunate events.”

“Higher probability of a rate hike in the US after a higher inflation print and geopolitical risks remain [and] continue to put the dollar in front position,” he added. INQ