Hike in BSP rates seen in Q4 2017, 2018

FILE PHOTO: The research unit of Fitch Group forecasts a 25 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates each in the last quarter of 2017 and in 2018, citing that low interest rate environment is not in line with the domestic economy’s robust growth. (Photo by Bangko Sentral ng Pilipinas, Public Domain)

MANILA — The research unit of Fitch Group forecasts a 25 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates each in the last quarter of 2017 and in 2018, citing that low interest rate environment is not in line with the domestic economy’s robust growth.

Last Sept. 21, the central bank’s policy-making Monetary Board (MB) kept the BSP’s overnight borrowing or reverse repurchase (RRP) rate at three percent, the overnight lending or repurchase (RP) rate at 3.5 percent and rate of the special deposit account (SDA) facility at 2.5 pecent.

This was made as the Board continues to see manageable inflation in the near term even as it hiked its 2019 average inflation forecast to 3.2 percent from 3.1 percent previously.

The 2017 and 2018 average inflation forecasts were maintained at 3.2 pecent.

The government’s inflation target for this year until 2019 is a range between 2 to 4 percent.

In a study, BMI Research said the Board “articulated a relatively neutral tone” last week.

“However, we believe that the cost of borrowing is currently too low for the level of economic growth, and with interest rates rising in the US and inflationary pressures in the Philippines likely to pick up further in the coming months, our view is for the central bank to hike rates by 25bps in 2017 and again in 2018,” it said.

The study said inflationary pressures and normalization of US interest rates are factors that may push domestic interest rates higher.

As of August, rate of price increases in the Philippines averaged at 3.1 percent.

Last month alone, inflation rose to 3.1 percent from month-ago’s 2.8 percent due to faster increases in alcoholic beverages and tobacco; housing, water, electricity, gas and other fuels; and transport indices, among others.

BMI Research projects inflation to hit four percent at the end of this year and average at four percent next year.

It cited as risk factors the rise of commodity and energy prices, which it sees “to remain supported over the coming quarters”; the sustained rise of loan growth and the impact of the government’s increased infrastructure spending that is seen to increase budget deficit to three percent of gross domestic product (GDP).