Another rate hike seen in December

The BSP on Thursday announced another 50 basis points increase in its key rates on “persistent signs of sustained and broadening price pressures.” (File Photo: Bangko Sentral ng Pilipinas/Facebook)

MANILA — Some economists project one more increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates before yearend, even after it has already raised them by a total of 150 basis points in 2018.

The BSP on Thursday announced another 50 basis points increase in its key rates on “persistent signs of sustained and broadening price pressures.”

This hike was made six weeks only after the policy-making Monetary Board (MB) made its last upward adjustment.

In a research note issued after the BSP rate increase announcement, ING Bank Manila senior economist Joey Cuyegkeng forecasts a 25-basis points hike in December “as inflation expectation remains elevated going into 2019.”

The December rate setting meet is the MB’s eighth for the year. After this month’s rate setting meet, the next one is scheduled on November 15.

On the same day, the Board also hiked the BSP’s average inflation forecast for the 2018-2019 period.

The 2018 average inflation forecast was revised up to 5.2 percent from 4.9 percent last August and the 2019 figure to 4.3 percent from 3.7 percent.

The upward revision of the forecasts was prompted by the higher-than-expected outturn last August, continued supply-side factors, rise of oil prices in the international market, and impact on Typhoon Ompong on agricultural products.

However, the forecast for 2020 remains at 3.2 percent.

With inflation seen to remain elevated but to go back to the two to four percent target band, Cuyegkeng said “it will be imperative for non-monetary policy measures to help alleviate prices pressures as we approach the all-important Christmas season, a crucial turning point ahead of the mid-term election in May.”

Discounting any natural and man-made calamities, he forecasts inflation to go back to within levels in the second half of 2019.

Meantime, ANZ Research also project a 25 basis points increase in the BSP’s key rates in December after monetary officials increased average inflation forecast for this and next year.

In a research note, it explained that “the revised forecast underscores that inflation will now remain above four percent even in 2019.”

“The upside risks to inflation, especially from the impact of the recent typhoon, highlight that further tightening is on the table,” it said.

“Accordingly, we continue to expect the BSP to raise its key policy rate by another 25 bps to 4.75 percent in December 2018,” it added.