BSP poised to hike interest rates – poll

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is widely expected to raise interest rates again this week as policymakers continue their efforts to steer inflation back within the central bank’s target range.

All 15 economists surveyed by the Inquirer expect the Monetary Board to tighten monetary policy at its June 18 meeting.

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Twelve forecast a quarter-point increase, while three anticipate a larger half-point move, underscoring concerns that price pressures could remain stubborn despite signs of easing.

A rate increase would extend the BSP’s tightening cycle, which began in April when policymakers lifted the benchmark rate by a quarter percentage point (ppt) to 4.5 percent.

At the time, the central bank warned of a “deteriorating” inflation outlook after the prolonged conflict in the Middle East triggered a surge in oil prices, adding pressure on energy-importing economies such as the Philippines.

Consumer prices rose 6.8 percent in May, slowing from 7.2 percent in April and coming in below market expectations as transport and food costs eased. Even so, inflation remained above the BSP’s 2-percent to 4-percent target range for a third consecutive month.

Sarah Tan, economist at Moody’s Analytics, said that while inflation softened last month, risks of inflation staying elevated remain high. She expected the BSP to tighten by 25 basis points.

“Although inflation moderated in May, it remains well above the BSP’s target range, while higher global commodity prices continue to pose upside risks to the inflation outlook,” Tan said.

Analysts at ANZ Research share that view, also projecting a quarter-point increase.

“We expect inflation to remain above the BSP’s target range for the rest of the year as oil price pressures persist and the Middle East conflict remains unresolved,” they said. “Second-round effects on prices will likely become increasingly pronounced in the coming months as producers pass on the higher cost of production to end consumers.”

Higher borrowing costs are intended to curb spending by households and businesses, helping to ease inflationary pressures but also weighing on economic activity. The Philippine economy grew just 2.8 percent in the first quarter, its slowest pace since the pandemic recovery began, amid the twin shocks of a major corruption scandal that dented confidence and a sharp rise in global oil prices.

Jun Neri, lead economist at Bank of the Philippine Islands, said the BSP may resort to a bigger 50-basis point increase this week as policymakers “catch up with inflation and reinforce its commitment to price stability.”

“The softer inflation print in May should be viewed less as an opportunity to delay further tightening and more as a chance for the BSP to demonstrate its commitment to price stability and counter perceptions that it is behind the curve on inflation,” Neri said.

“Acting forcefully now with a substantial rate hike may allow the central bank to avoid off-cycle rate hikes that could be more disruptive,” he added.

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Aris Dacanay, senior Asean economist at HSBC Global Investment Research, also sees a half-point hike coming this week, citing the need for the BSP to manage inflation risks from a weak peso.

“These shocks may be ‘supply-side’ in nature but managing FX-induced inflation in this environment will be key to ensure that the supply-side shocks do not spill over to inflation expectations,” Dacanay said. “And to do so, having an aggressive monetary policy stance will be appropriate to mitigate FX volatility.” /atm