BSP hikes inflation outlook, hints at November rate increase

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday hiked its inflation outlook for the year due to a number of factors, including higher fuel prices, but hinted at the possibility of a rate increase in its next meeting in November.

The target reverse repurchase (RRP) rate was kept at 6.25, the overnight deposit facility rate at 5.75%, and the overnight lending facility rate at 6.75% — rates that have been in place since March 2023.

“I would say rate cuts this year, 2023, are off the table, but rate hikes are not off the table,” BSP Governor Eli Remolona Jr. told reporters at a briefing in Manila City on Thursday.

“As I said, a rate hike is on the table for November. How big it will be will depend on the data,” he added, with the next policy meeting scheduled on November 16, 2023.

This comes as inflation expectations for the year have been hiked to 5.8% from the previous forecast of 5.3%, and to 3.5% from 3.3% for 2024.

“The upward adjustments in the 2023 and 2024 projections reflect the spillovers from weather disturbances, rising global crude oil prices, and the recent depreciation of the peso,” Remolona said.

Locally, pump prices of gasoline have been hiked for the past 10 weeks, and diesel and kerosene for the past 11. Year-to-date net increases stood at P15.50 per liter for gasoline, P11.10 per liter for diesel, and P7.94 per liter for kerosene as of September 12, 2023.

The BSP also cited the faster-than-expected inflation print in August, which came in at 5.3%, snapping a six-month downtrend. It is also the fastest since the 5.4% in June.

For the rest of the year, Remolona said inflation could likely enter the 2.0% to 4.0% target range by November, later than the initial projection of September. It is then projected to go down by the first quarter of 2024, then accelerate again to the higher side of the target range due to base effects.

“If we raise in November, then I expect rates to stay at that level for the early part of next year,” he said. 

A number of economists, however, cautioned against further rate hikes amid the worsening growth outlook across the globe.

“(W)e think the central bank will be wary about hiking interest rates further due to the worsening outlook for growth,” Capital Economics Senior Asia Economist Gareth Leather said in a commentary.

“The upshot is that while further interest rate hikes are unlikely, policy will need to remain tight for the foreseeable future. We think interest rates will remain on hold well into next year,” he added.

In a separate commentary, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael Ricafort said a pause or cuts could be possible for the coming months, matching the movement of the Federal Reserve.

“(F)urther local policy rate pause or even cut/s could already be possible for the coming months (especially into 2024), as a function of future Fed rate pause or cut/s as well as the behavior of the peso exchange rate, going forward,” he said.

The Philippine peso closed Thursday at P56.855:$1, weaker than Wednesday’s finish of P56.775:$1. The inter-agency Development Budget Coordination Committee (DBCC) expects the peso-dollar rate to settle within P54:$1 to P57:$1 for the year.— RSJ, GMA Integrated News