DBS sees BSP rate hike before end ’17

BSP’s policy-making Monetary Board (MB) will have its last two policy meetings for the year on Nov. 9 and Dec. 14. (SHUTTERSTOCK)

MANILA— Multinational banking institution DBS forecasts a hike in the Bangko Sentral ng Pilipinas’ (BSP) key rates before end-2017 partly due to sustained rise of inflation rate.

“We expect BSP to hike 25bps (basis points) either in the November or the December meeting”, said DBS economist Gundy Cahyadi in a research note issued Thursday.

BSP’s policy-making Monetary Board (MB) will have its last two policy meetings for the year on  Nov. 9 and Dec. 14.

To date, the central bank’s key rate, or rate of the reverse repurchase (RRP) facility is three percent.

This has been maintained since June 2016 when the MB introduced its Interest Rate Corridor (IRC).

To make way for IRC implementation, the RRP rate was changed from four percent but monetary officials said the rate adjustment is policy-neutral.

Analysts have been projecting a change in the BSP rates as inflation continued to increase and the peso remained weak against the greenback.

As of end-September this year, rate of price increases averaged at 3.1 percent, within the government’s two to four percent target for 2017 to 2019.

However, the September figure alone registered its five-month high of 3.4 percent from month-ago’s 3.1 percent. September 2016 inflation rate is lower at 2.3 percent.

DBS forecasts the October 2017 inflation to decline to 3.3 percent.

It expects inflation to remain within the 3.3-3.5 percent range until the end of the year.

“Risks are the upside given recent move in global crude oil prices,” it said.

The peso finished Thursday at 51.42, better than last Monday’s 51.61 close.

There were no trading on Oct. 31 and Nov. 1 in line with the commemoration of All Saints Day.

Monetary officials are confident on the current trading level of the peso, saying this is not unusual given the developments both here and abroad.

DBS, in the research note, pointed out that “yes, the rhetoric from the BSP continued to suggest that the central bank remains comfortable with a weak peso.

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It explained that “from an export competitiveness perspective, the central bank’s stance on the currency may make sense for now” since exports grew by more than 12 percent to date from 1.8 percent in 2016.

It, however, noted that the peso’s weakness has resulted in slower investment expansion.

During the same period, imports have risen by three percent, way lower than the 46.6 percent in 2016.