RISING oil prices will not push the Central Bank to pursue another rate hike in the next monetary- policy meeting in August, but a significant increase in local wages will, an international banking giant said.
In a commentary following the Bangko Sentral ng Pilipinas’s move to effectively hike its monetary-policy rates on Wednesday, HSBC said it does not expect the BSP to pull out another rate hike within the year, given easing inflationary pressures.
On Wednesday the BSP Monetary Board decided to raise its main policy rate by 25 basis points to 4 percent. This came on the heels of the May monetary-policy meeting, where the MB decided to hike the main policy rates also by 25 basis points for the first time since 2014.
The back-to-back hike also did not stop the BSP from opening its doors to further hike this year, with BSP chief Nestor A. Espenilla Jr. expressing preparedness to take “further policy action as needed.”
HSBC said the June hike is largely pegged on responding to external developments, particularly the more hawkish stance of the United States Federal Reserve with regards to its own monetary- policy direction.
As such, the bank said the BSP is “likely through” with rate hikes this year given easing inflationary momentum.
BSP officials on Wednesday said inflation expectations were slightly lowered to cover for the slower-than-expected inflation in May—bringing forecasts to 4.5 percent from 4.6 percent for 2018 and 3.3 percent from 3.4 percent for 2019.
“We still expect headline inflation to peak on a yearly basis in the second half of 2018, but mainly due to base effects and higher oil prices, which we believe aren’t reason enough for additional monetary tightening,” HSBC said.
The bank, however, said that among the key things to watch out for are second-round impacts from the tax reform in the form of rising wages.
HSBC noted that while recently passed minimum -wage hikes in the Visayas region have all been within the BSP’s forecast range of P20 or less, a broader and higher wage hike could change the game for local inflation and monetary-policy direction.
“Any significant increases in minimum wages and/or broad-based wage hikes across the board would likely trigger even higher prices that would prompt the BSP to hike rates further,” HSBC said.