The Monetary Board (MB) is expected to raise the key rate of Bangko Sentral ng Pilipinas (BSP) again at the August 18 meeting, this time by 0.5 percentage point (ppt) to 3.75%, the peak of inflation has not yet been reached. seen.
Economic think tanks also expect the BSP to continue raising its overnight borrowing rate later this year by at least 0.25 percentage points.
Moody’s Analytics said the BSP faced significant pressure on inflation, which showed no signs of letting up, rising for the fifth consecutive month to 6.4% in July.
It was the highest monthly inflation reading since October 2018 or nearly four years ago, but it could soon turn lower.
“With commodity prices easing and supply chain strains easing, inflation is likely near its peak,” said Adam Kamins, director of analytics at Moody’s.
Kamins noted that gross domestic product (GDP) growth for the second quarter came in below expectations at 7.4% year-on-year and contracted from the previous quarter.
ING Bank’s senior economist in the Philippines, Nicholas Mapa, said he expects inflation to peak in October.
Mapa said the BSP would likely retain its hawkish bent with Felipe Medalla at the helm, to raise the key rate to 4.5% by the end of this year, especially if the US fed funds sit at 3.75%.
This means an additional rise totaling 0.75 points after a 0.5 point rise that ING Bank is expecting this week.
Currently, the BSP’s key rate is 3.25% and the US Federal Reserve’s is 2.25% to 2.5%.
Capital Economics said the BSP tightening cycle will be over by the end of this year, after making hikes totaling 1.25 percentage points earlier this year, including an off-cycle increase of 0.75 points. percentage in July.
“Recent hawkish comments by new BSP Governor Felipe Medalla suggest that the [BSP] will rise again at its meeting on Thursday, and we have listed another 25 basis points [or 0.25-ppt] hike,” Capital Economics said.
Earlier, Medalla said the MB could opt for a 0.25 ppt or 0.5 ppt rise. After the release of July inflation data, he said the latest figures raised the possibility of a 0.5 point increase.
“We have forecast further hikes for the BSP meetings in September and November, but we believe the cycle of central bank tightening will end by the end of the year as inflation begins to subside. and growth is slowing,” the company said.
Capital Economics predicts that lower fuel prices will cause inflation to start falling sharply later this year.
United Overseas Bank said the latest data on inflation and GDP growth warrant continued policy rate hikes this month. UOB raised its expected rate hike this month to 0.5 ppt from 0.25 ppt.
“We expect BSP to continue with a 25 basis point hike in September before pausing at the November and December meetings unless the global and domestic environments move in unexpected directions,” he said. said the UOB.
This will bring the BSP overnight rate back to the pre-pandemic level of 4% by the end of this year.
Goldman Sachs Economics Research also forecasts a 0.5 point rise this week as inflationary pressure is expected to persist, with more pressure on core inflation, currency weakness and GDP growth in line with expectations. of the BSP.
“Going forward, we continue to expect BSP to make consecutive hikes of 25 bps (0.25 ppt) at the September, November and December meetings, bringing the key rate to 4.5% from by the end of 2022,” Goldman Sachs said.
Robert Dan Roces, chief economist at Security Bank Corp., expects an increase of 0.5 points this week and 0.25 points in September, citing “the larger-than-expected slowdown in GDP in the second quarter.”
But Roces also expects a pause in policy rate hikes in the fourth quarter, to make way for peak consumption and the remittance season. INQ
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