Jumbo rate hike option still alive 

MANILA, Philippines – A jumbo interest rate hike remains a possibility despite softer-than-expected inflation in May, with foreign banks saying the Bangko Sentral ng Pilipinas (BSP) cannot afford to let its guard down while price pressures remain elevated.

In a note to clients, Aris Dacanay, senior Association of Southeast Asian Nations economist at HSBC Global Investment Research, said a 50-basis-point (bp) rate hike remained on the table, pointing to a continued acceleration in core inflation, which excludes volatile food and energy items and has climbed above the central bank’s 2-percent to 4-percent target range.

READ: BSP seen set for jumbo 50-bp rate hike to 5%

Still, Dacanay said the moderation in headline inflation last month had eased pressure on the BSP to deliver any emergency tightening measures before its next scheduled policy meeting.

“The spillover effects from the initial surge in inflation still need to be managed, more so with food inflation expected to increase,” he said. “The BSP has four meetings left in the year, which means one meeting may need to be an outsized 50-bp rate hike.”

Economists at Deutsche Bank echoed the view. “Our view of BSP hiking by 50-bp in the June Monetary Board meeting is unchanged as we think the lower print may only be temporary—and it is still materially above BSP’s target,” the bank said in a separate note.

“Broad price pressures are still building up in the economy, and our outlook for global inflation is still elevated,” it added.

The consumer price index went up 6.8 percent from a year earlier in May, below the central bank’s 7.1 percent to 7.9 percent forecast for the month and was also lower than the 7.7-percent median estimate of 12 economists polled by the Inquirer. Data showed slower price increases in transport, food and housing and utility costs, though the gains across these segments remained elevated.

Meanwhile, core inflation, which provides a cleaner reading of underlying trend in consumer prices, jumped 4.1 percent from 3.9 percent in April.

In a statement, the BSP said it would “take necessary actions to ensure inflation returns to its 3-percent target, in keeping with its primary mandate to ensure price stability.” The central bank has also said inflation may average 6.3 percent this year and 4.3 percent in 2027.

The BSP has already responded by raising its key policy rate by a quarter point to 4.5 percent at its April 23 meeting amid a “deteriorating” inflation outlook. Governor Eli Remolona Jr. has said the May inflation data would be a key input for the Monetary Board’s next policy decision. INQ