More hikes in BSP key rates seen this year

With supply-side pressures remaining, Cuyegkeng said it is likely for the BSP’s policy-making Monetary Board (MB) to hike rates by 25 basis points either in September or November. (File Photo: Bangko Sentral ng Pilipinas/Facebook)

MANILA — An economist projects further hike in the Bangko Sentral ng Pilipinas’ (BSP) key rates this 2018 if inflation hits 6 percent in the next few months.

In a research note, ING Bank Manila senior economist Joey Cuyegkeng said a 6-percent level inflation rate is possible “in the next two inflation reports” since reports point to sustained increase of rice prices and supply-side constraints.

This projection is contrary to monetary officials’ forecast that the rate of price increases will not breach 6 percent even as it is seen to remain at elevated levels.

With supply-side pressures remaining, Cuyegkeng said it is likely for the BSP’s policy-making Monetary Board (MB) to hike rates by 25 basis points either in September or November.

This is on top of the 100 basis points increase in the central bank’s key rates to date on account of the sustained rise of inflation rate, which as of end-July averaged at 4.5 percent, way above the government’s 2 percent to 4 percent target band.

Cuyegkeng said the rate hikes show Philippine monetary officials’ hawkish stance, which, he said, is being kept not only to reassure markets that inflation will go back to within-target levels by 2019 but also to reduce worries on the local currency and lessen its impact on inflation.

“We expect the tightening to continue with another 25 bps (basis points) hike as early as the September meeting or as late as the November meeting,” he said.

Cuyegkeng noted that if inflation breaches 6 percent in the coming months “then further tightening is likelier.”

“We expect growth to slow as BSP addresses the imbalance in the external payments position by moderating private sector import demand,” he added.