Tightening of BSP key rates expected

The September 2018 inflation projection of the Bangko Sentral ng Pilipinas (BSP) is 6.8 percent. (File Photo: Bangko Sentral ng Pilipinas/Facebook)

MANILA – Some economists forecast further tightening of the Bangko Sentral ng Pilipinas’ (BSP) key rates before yearend to counter rising inflation, which registered another uptick last September.

ANZ Research, in a report, said the 6.7 percent inflation last September, from 6.4 percent in the previous month, is lower than most expectations.

The September 2018 inflation projection of the Bangko Sentral ng Pilipinas (BSP) is 6.8 percent.

In the first nine months this year, average inflation rose to five percent, higher than the government’s two to four percent target.

ANZ raised the possibility of inflation hitting the seven percent level by November given the impact of Typhoon Ompong (Mangkhut) on agricultural products.

This, as it noted that rice, corn, and livestock account for about 22 percent of the consumer price index (CPI) basket.

And since inflation has risen to over six percent in the past two months, “bringing inflation below four percent target will require further tigthening,” the research said. “In combination with robust domestic demand, the lingering impact of taxes, weaker peso, and elevated crude oil prices, cost-push pressures are also likely to remain strong.”

Bringing inflation back below target, it said, will require more policy response.

“We expect the BSP to hike the policy rate by another 25 bps (basis points) to 4.75 percent at their December meeting,” said.

To date, the BSP’s key policy rates have been increased by 150 basis points to anchore inflation expectations and ensure price stability.

Monetary officials, however, said non-monetary measures must be implemented to address supply issues.

Thus, the issuance of several memoranda to ensure adequate supply of agricultural and fish products, which have been the cause of elevated inflation in the past months.

These issuances include Memorandum Order (MO) 27, which directs the Department of Agricultlure (DA), the Department of Interior and Local Government (DILG), and the Metropolitan Manila Development Authority (MMDA) to ensure efficient and seamless delivery of imported agricultural and fishery products from ports to markets.

Also, MO No. 28 directs the National Food Authority (NFA) for the immediate release of about 230,000 metric tons (MT) of rice in its warehouses nationwide and the immediate distribution of the 100,000 MT of rice that have been contracted and was expected to be delivered by end-September.

Economic managers have also asked legislators for the immediate passage of the rice tariffication bill to ensure more rice supply in the country and address the commodity’s high prices.

Meanwhile, IHS Market Chief Economist for Asia Pacific Rajiv Biswas, in a study, said the uptick of domestic inflation rate last September will make monetary officials remain concern on inflation risks, thus, “will likely tighten further in Q4 2018, even though the BSP Monetary Board hiked rates by 50bps at its September meeting.”

He added that on top of the inflation factor, the central bank “is also concerned by the depreciation of the peso, which is being hit by a number of factors, including rising US interest rates, emerging markets contagion from the Turkish economic crisis, concerns about the impact on East Asia of the US-China trade war as well as domestic factors, notably the widening current account deficit and eroding foreign exchange reserves.”

He said the peso continues to face more headwinds despite the increase in the central bank’s key policy rates.

He attributed this to concerns over the outlook on emerging markets like the Philippines as well as the continuation of portfolio outflows.