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BSP may hike rates by 50 bps — poll

BSP may hike rates by 50 bps — poll

Post features our Advisory Board member and Colegio de San Juan de Letran Graduate School Associate Professor Emmanuel J. Lopez:

THE BANGKO SENTRAL ng Pilipinas (BSP) is widely expected to raise the benchmark rate on Thursday, with most analysts forecasting a 50-basis-point (bp) increase after inflation quickened to a near four-year high in July.    

BusinessWorld poll last week showed 16 out of 18 analysts anticipate the Monetary Board will increase its benchmark interest rate at its meeting on Aug. 18.

For 13 analysts, the central bank may deliver a hike of 50 bps, while three analysts see a 25-bp increase. Only two analysts expect the BSP to keep rates unchanged.

“Given the fifth consecutive month of pickup in inflation rate to… 6.4% in July resulting in year-to-date inflation rate of 4.7% vs 3.9% last year, and given our view that monthly inflation rate will stay elevated and peak around 6.5%-6.6% only in September to October before easing, we expect BSP to continue raising interest rate by another 50 bps at its meeting next week,” Maybank Investment Bank Chief Economist Suhaimi Bin Ilias said.

Latest data from the Philippine Statistics Authority (PSA) showed the consumer price index (CPI) climbed 6.4% year on year in July, the fastest growth in 45 months or since the 6.9% logged in October 2018.

“Inflation remains the key consideration as it affects growth and reopening and thwarts consumption — the main engine of the economy,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail.   

“Thus, the deeper-than-expected slowdown in 2Q GDP (gross domestic product) is unlikely to deter the BSP from raising interest rates by 50 basis points on Aug. 18,” Mr. Roces added.   

The Philippine economy expanded by 7.4% in the second quarter as rising inflation weighed on consumer spending, based on preliminary data released by the PSA.

The second-quarter growth print was slower than 12.1% a year earlier and 8.2% in the first quarter.

MUFG Bank analyst Sophia Ng said in an e-mail that taming inflation itself could help boost private consumption, which saw a slowdown in the April to June period.

Household spending fell by 2.7% quarter on quarter, as inflation accelerated due to higher prices of food and fuel.

“The recent GDP figure further demonstrates that demand-pull inflation may not be at work yet in the Philippines,” China Banking Corp. Chief Economist Domini S. Velasquez said.

With the off-cycle hike of 75 bps in July, the Monetary Board has raised benchmark interest rates by a total of 125 bps so far this year.

“The BSP has no other recourse but to increase policy rate by another 50 basis points to follow the almost 200 basis points that the US Federal Reserve has instituted to soften the impact of the US recession,” Colegio de San Juan de Letran Graduate School Associate Professor Emmanuel J. Lopez said in an e-mail.   

Article first appeared on Businessworld Online (https://www.bworldonline.com/top-stories/2022/08/15/468247/bsp-may-hike-rates-by-50-bps-poll/?fbclid=IwAR3aEeQqUxs6RV5QaK98vPT5_ZYCsPV3gGufOxjg1GOA4Nc1GdIg7vge2h0&fs=e&s=cl )