DBS bets PHL to be the first ASEAN state to raise rates

The Bangko Sentral ng Pilipinas (BSP) is expected to raise rates during its policy meeting in August, the first Association of Southeast Asian Nations (ASEAN) member that will do so, given its continued economic growth, Singapore-based DBS Group Research said in a report.

According to the report, the BSP will raise rates by 50 basis points (bps) this year alone. "The BSP is set to be the first central bank to hike rates in ASEAN," DBS said.

"We expect the BSP to raise its policy rate (overnight reverse repo rate) by 25 bps to 3.25 percent at its meeting on 10 Aug ... The BSP is expected to deliver another 25 bps hike by year-end and pause till mid-2018," it said.

"With the fastest growing economy in the region, Bangko Sentral ng Pilipinas has scope to start and lead rate hikes in the region over the next few years," the report read.

The Philippine economy grew by 6.9 percent in 2016. It targets a 6.5 to 7.5 percent gross domestic product growth this year.

According to DBS, the risks to more hikes after 2018 will depend on the success of the government's ambitious infrastructure spending program.

First Metro Investment Corp. (FMIC) earlier said it expects the BSP to raise interest rates this year, in line with pronouncements by the US Federal Reserve that it may further increase policy rates.

In its policy meeting on June 13 and 14, the Fed decided to raise its benchmark lending rate by a quarter percentage point.

With a policy meeting scheduled on June 22, the BSP said it will continue to be guided primarily by inflation.

"The BSP will continue to be guided in its next policy moves, primarily by our outlook on inflation, but we will of course be mindful of near-term risks that may be addressed by macro prudential tools," Tetangco said in a text message on Thursday.

Tetangco earlier said the BSP does not necessarily move in sync with the Fed.

Should the BSP decide to raise rates in August, it will be the first policy move under incoming BSP Governor Nestor A. Espenilla Jr. Outgoing Governor Amando M. Tetangco Jr. retires on July 2. — VDS, GMA News