BENGALURU: The Philippine central bank will deliver a second straight half-point rate rise on Thursday, according to a slim majority of economists in a Reuters poll, as it grapples with inflation at a 14-year high and showing no meaningful signs yet of cooling.
That finding put Bangko Sentral ng Pilipinas (BSP) in a different spot from many other Asian central banks which have shifted down to smaller rate rises or are attempting to draw their tightening campaigns to a close.
Inflation rose to 8.7% in January, more than double the official target range of 2%-4%, from 8.1%.
Economists polled by Reuters last month expected inflation to average 4.5% this year and only fall to 3.3% in 2024.
Just over half of economists in the latest survey, 13 of 24, said the BSP would opt for a 50 basis-point hike on Thursday, bringing the benchmark overnight borrowing rate to 6.00%.
The remaining 11 predicted a smaller 25 basis-point hike and few among those forecast another quarter percentage point hike next month. Rates at 6.00% would be the highest since 2008, before the last global financial crisis.
“They are (the BSP) either going to go for a 50 or 25 basis point hike. But we do think they will go for that outsized amount to signal their priority in bringing down inflation,” said Katrina Ell, senior economist at Moody’s Analytics. “Unlike other economies in the region where price pressures are starting to cool, in the Philippines they have not yet started to.
So, the central bank really needs to keep the pressure with ongoing tightening.“ That aligns with a recent statement from BSP Governor Felipe Medalla, who said the central bank is ready to adjust its monetary policy to anchor inflation expectations, rather than following the US Federal Reserve.
But not everyone is convinced a half-point move is on the cards. “They (BSP) are not facing any currency pressures and it’s less likely they will do a 50 basis point hike when the Fed is doing 25 and when global central banks are trying to moderate their pace of hikes,” said Shreya Sodhani, regional economist at Barclays. The Philippine peso, which dropped around 9% in 2022, is up nearly 2% this year.
Philippines’ finmin: Govt to step up efforts to curb inflation
“Definitely there is a risk of 50 basis points next week, but I think the higher probability is a 25 basis point hike,” Sodhani said.
The BSP has raised rates by 350 basis points since May 2022, including a half-point in December and a jumbo 75 basis points the month before.
While economists were split on the pace of tightening, more than half, 10 of 18, predicted the cash rate to peak at 6.00% by end-March. Median forecasts saw rates at 6.00% till end-2023.
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