Will the BSP hike rates anew? Analysts divided

Bangko Sentral ng Pilipinas. (File photo / Philippine Daily Inquirer)

Analysts are divided on whether the Bangko Sentral ng Pilipinas (BSP) is done raising interest rates, with some saying there will be an additional hike as early as Thursday.

The Monetary Board has two more out of this year’s eight policy meetings, one on Nov. 16 and the last on Dec. 14.

Despite an in-between meeting decision announced on Oct. 26 that raised the BSP’s benchmark interest rate by 0.25 percentage point to 6.5 percent, ING Bank said the stronger-than-expected economic growth rate in the third quarter opened the door “for more hikes.”

Robust growth

Philippine gross domestic product (GDP) grew by 5.9 percent in the third quarter, exceeding the consensus forecast of 4.7 percent.

“Robust growth coupled with hawkish statements from [BSP] Governor Remolona points to at least one more rate hike before the end of the year and possibly two should BSP’s inflation forecasts for 2024 remain elevated,” ING Bank senior economist Nicholas Mapa said in a commentary.

“We expect BSP to hike next week at the [Nov. 16] meeting before raising rates to 7 percent at the December meeting with BSP predicting 2024 inflation will average 4.7 percent year-on-year,” Mapa said.

Citi group thinks the same, expecting a 0.25-ppt hike on Thursday to bring the policy rate to 6.75 percent.

“While October inflation has surprised on the downside, one month of decline may not give the BSP enough comfort when (third-quarter GDP) outturn was much more robust than the BSP’s forecast of 4.5 percent,” Citi said.

On the other hand, HSBC’s Aris Dacanay expects to BSP to keep interest rates unchanged “barring any new and unexpected supply-shock.”

Room for action

Dacanay noted that Remolona told a Senate hearing that a policy rate of 6.8 percent was “just right” to support the economy in the long run.

“This means the Governor believes that there is still room to hike rates, but it will largely depend on data and policy,” he said.

Similarly, Nomura’s Euben Paracuelles said a follow-up rate hike by BSP in the near-term is now unlikely considering improved inflation data.

“We now see BSP’s hiking cycle as over, but we delay further our forecast for BSP to start its cutting cycle to September from May 2024,” he said.

Pantheon Macroeconomics said rate cuts will start as early as the first quarter next year, when they forecast a a total of one-percentage point reduction by the BSP. INQ