BSP seen to deliver back-to-back rate hikes

The Bangko Sentral ng Pilipinas (BSP) is likely to implement back-to-back policy rate hikes in a bid to ease the continuous inflationary uptrend in the country, the DBS Group Research said in its latest flash note.

According to economist Chua Han Teng, the central bank could raise the policy rates by 25 basis points when it meets on Thursday, June 23, with another follow-up hike scheduled on August 18.

“An economy that is recovering from the pandemic amid looser virus restrictions means that extreme pandemic-era accommodation is no longer needed,” the research note said.

“The BSP will be keen to temper rising inflation expectations to keep in line with its price stability mandate, and avoid falling behind the curve,” it added.

The central bank already raised hikes by 25 basis points for the first time since 2018 last month, bringing the overnight reverse repurchase facility to 2.25%, the overnight deposit facility to 1.75%, and the overnight lending facility to 2.75%.

Inflation then stood at 5.4%, marking the fastest reading in over three years since it clocked in at 5.2% in December 2018. This compares with the 4.9% in April, and 4.1% the same month last year.

The latest reading is also higher than the BSP’s target range of 2% to 4% for the second straight month, which DBS Research believes to continue for some more months.

“Domestic monetary tightening however would do little to tackle imported inflation driven by global supply-side disruptions,” the research note said.

It flagged the possible impact of the depreciation of the Philippine peso against the US dollar, noting that it is weakening in the fastest annual pace in about five years.

The Philippine peso hit the P54:$1 level on Monday, marking its weakest close in over three years, attributed to the latest remarks of the US Federal Reserve indicating further rate hikes.

“A weakening peso might fan imported inflation at a time of elevated global commodity prices, and in turn stoke higher inflation expectations and second-round effects, which the BSP would want to contain,” DBS said.

Energy Undersecretary Gerardo Erquiza Jr. on Monday said domestic pump prices could reach P100 per liter, should the weekly increases continue.

Oil firms on Monday announced another hike in pump prices, reflecting the third straight week of increases in the country. Prices have so far been on an uptrend for most of the year.—AOL, GMA News