Economist keeps BSP rate hike forecast in Q4 ’17

FILE PHOTO: An economist of ING Bank Manila is keeping his forecast of a 25 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates in the last quarter of 2017 amid the Monetary Board’s (MB) decision to maintain rates last week. (Photo by Bangko Sentral ng Pilipinas, Public Domain)

MANILA —  An economist of ING Bank Manila is keeping his forecast of a 25 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates in the last quarter of 2017 amid the Monetary Board’s (MB) decision to maintain rates last week.

To date, the rate of the central bank’s overnight borrowing or reverse repurchase (RRP) rate is three percent, the overnight lending or repurchase (RP) rate is 3.5 percent, and rate of the special deposit account (SDA) facility is 2.5 percent.

In a research note, ING Bank Manila senior economist Joey Cuyegkeng said market players were not disappointed by the MB’s decision to keep rates steady last week, which also helped boost the peso against the US dollar.

The Board also kept its 2017 and 2018 average inflation forecast at 3.2 percent but hiked the 2019 projection to 3.2 percent

“Higher costs are expected to keep inflation elevated relative to the 1.8 percent inflation rate in 2016. Consensus has shifted to steady policy settings for the rest of the year,” Cuyegkeng said.

The economist said most analysts expect the BSP to hike key rates by 25 basis points each in the first and second quarter of 2018.

He, however, has a different view and eyes a 25 basis points increase in the las quarter this year and two additional hikes next year.

“This is partly driven by the need to keep inflation expectations well anchored and to preserve interest rate differentials,” he said.
This has kept the interest rate differential more attractive than those prevailing in late July and for most of August,” he added.