FOLLOWING the lower-than-expected growth figures for the third quarter, analysts are now betting on what the Bangko Sentral ng Pilipinas (BSP) will give priority to in its upcoming monetary-policy meeting this week—taming inflation or propping up growth.
In its latest commentary on the Philippine economic dynamics, Fitch Solutions—the research arm of Fitch Group—believes the BSP will continue to hike rates in their upcoming meeting despite the risks of rising interest rates dampening consumer spending.
“We believe that the rate-hiking cycle in the Philippines and in the US is far from over, given the expansionary fiscal stance in both countries, which is exerting upside pressure on inflation,” Fitch Solutions said.
“Furthermore, the BSP is unlikely to keep real interest rates in negative territory, as this would remove a crucial support for the peso, particularly at a time when risk aversion is rising globally, and the US Fed is maintaining a hawkish stance,” it added.
The think tank’s forecast is for BSP to hike its policy interest rate by an additional 25 basis points to 4.75 percent by the end of 2018, and by another 75 basis points in total to 5.5 percent by the end of 2019.
The BSP Monetary Board is expected to meet on Thursday. This will be their second to the last meeting for the year.
However, ING Bank shared contrasting views for the BSP’s next move, saying it will likely halt any movement off the table to prop up its growth numbers.
“Until the Philippines GDP [gross domestic product] release, our house view had been for a 25-basis-point BSP rate hike at the meeting next week. That’s now been revised to no change, probably through the rest of the year,” ING Bank economist Prakash Sakpal said in its most recent review of central banks in the region.
ING Bank economists say the weak GDP argues for “dovish undertones” from BSP officials, prompting guesses that the aggressive rate hikes to curb inflation will be paused, at the least, on Thursday.
Following the 6.7-percent inflation print announcement, BSP Governor Nestor A. Espenilla Jr. said the October inflation data supports their view that inflation pressures are “finally” moderating.
“The Monetary Board will take into account these and other incoming data including GDP, at its next policy meeting when it determines if there’s still need for further policy-rate adjustments,” Espenilla said earlier.
The governor did not issue any statements following the release of the country’s third-quarter gross numbers.
Both Fitch Solutions and ING Bank revised their growth outlook of the Philippines downward for this year, both seeing a 6.2-percent average growth for the year.