Economists see further tightening measures from the Bangko Sentral ng Pilipinas (BSP) in their coming policy meeting, as the central bank governor expressed concern about the higher core inflation in August this year.
Analysts looking at the economic dynamics of the Philippines said the highest policy-making body of the central bank will likely raise the main overnight rates by another 25 basis points, or may hike the interest rates on special deposit account (SDA) facility by another 25 basis points. Some economists are also of the view that the central bank may move to hike rates in both the overnight policy rates and the SDA interest rates in its next meeting on Thursday, largely due to the elevated level of core inflation as announced by the Philippine Statistics Authority (PSA) on Friday.
“Inflation remains a concern. Ensuring that inflation would be within next year’s 2-percent to 4-percent inflation target range is a priority, in my view. Liquidity in the system remains high, even as liquidity growth is slowing,” ING Bank Manila economist Joey Cuyegkeng said.
“August inflation remained steady at 4.9 percent, which is close to the upper end of the BSP’s target for the year. More worrisome, however, was the rising trend seen in core inflation, which printed at 3.4 percent, faster than July at 3 percent and also higher than the 3.2-percent consensus estimates,” Bank of the Philippine Islands (BPI) economist Nicholas Mapa said.
In particular, BPI’s Mapa along with Banco de Oro’s (BDO) Chief Market Strategist Jonathan Ravelas forecasted an increase in both the central bank’s overnight policy and the SDA interest rate both by 25 basis points.
Barclays Research regional economist Rahul Bajoria, meanwhile as the Singaporean banking giant DBS Bank sees the BSP raising only the overnight rates by 25 basis points.
ING’s Cuyegkeng forecasted only a tightening in the central bank’s SDA interest rate by 25 basis points.
Mapa explained that the inflation expectations remain elevated due to the disruptions in rice production and bidding, as well as Manila Electric Company’s possible decision to implement power-rate hikes in 2015.
“The national government must do more to help mitigate the recent inflation build-up given that they are predominantly in the supply side. Delays in importation of rice is truly hurting the Filipino consumer and the BSP can only do its part by adjusting the monetary policy to keep inflation pressures at bay,” Mapa added.
The current overnight borrowing rate is now at 3.75 percent, while the SDA rate is at 2.25 percent.
