‘BSP not yet done using rate hike to cure inflation’

AFTER three consecutive rate hikes—with the latest policy action being the strongest from the Central Bank in over a decade, economists believe the Bangko Sentral ng Pilipinas (BSP) is not done yet in trying to cure the rising inflation in
the economy.

With inflation expected by the BSP to hit 4.9 percent for this year and 3.7 percent for next year, economists agree that the BSP will likely make one more 25-basis-point rate hike before this year ends.

Economists from ING Bank Manila, J.P. Morgan Chase & Co. and Fitch Solutions agreed that tightening is likely to continue in the fourth quarter of the year, with inflation remaining elevated up until 2019.

ING Bank Manila economist Joey Cuyegkeng said he expects another 25-basis-point rate hike in the fourth quarter of the year and another 50-basis- point hike in 2019.

“The seven-month inflation average is only 4.5 percent. The BSP’s inflation forecast for 2018 implies that inflation will still peak in the coming months and that inflation could average 5.5 percent in the next five months,” Cuyegkeng said.

“With the peak of inflation still ahead, inflation expectations are unlikely to stabilize anytime soon. Further monetary tightening would be needed to ensure that such expectations become well-anchored,” he added.

J.P. Morgan economist Benjamin Shatil was also of the view that they are looking for another 25-basis- point hike in the fourth quarter of the year, with the possibility that this could come earlier “should price pressures remain elevated against the baseline expectation of some moderation.”

“The ongoing combination of firm demand, broadening price pressures and thinning external buffers suggests the potential for further monetary-policy tightening this year. We look for another 25-basis-point hike in the fourth quarter of the year,” Shatil said.

“In this context, the CPI inflation data will be key in guiding the policy outlook over the next several months,” the economist added.

Fitch Solutions—the research arm of the Fitch Group—further said the local economic growth, despite slumping to 6 percent in the second quarter of the year, is still strong enough to absorb another rate hike for the year.

“Given that the Central Bank maintained its hawkish tone in spite of the lackluster economic performance, stating that ‘favorable conditions arising from sustained domestic growth also suggest that the economy can accommodate a further tightening of monetary- policy settings,’ we have revised our forecast for the Central Bank to tighten its policy rate by a further 25 basis points to 4.25 percent before end-2018,” Fitch Solutions said.

The BSP is expected to meet again on September 27 for its sixth monetary-policy meeting for the year.

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Bianca Cuaresma graduated cum laude from the University of Santo Tomas (UST) with a degree in AB Journalism. She was with the BusinessMirror during her internship in 2012 where she was assigned at the Department of Foreign Affairs (DFA) beat. She continued to be of service to the paper after she graduated in 2013. In 2014, she was awarded as the Reporter of the Year by the paper for her coverage in the Bangko Sentral ng Pilipinas (BSP). She is a BusinessMirror reporter for 3 years now, and has covered general assignments and agencies related to banking and finance in the country.

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