📷 thepost24.com
The Bangko Sentral ng Pilipinas is expected to maintain its key interest rate at 6.5 percent for a fourth consecutive meeting on Thursday despite inflation accelerating in August, a CityPost poll showed.
A survey of 19 analysts conducted by CityPost from May 6 to 12 revealed that 17 analysts expect the Monetary Board’s policy review later this week will maintain its target reverse repurchase rate at a 17-year high of 6.5 percent.
To curb inflation, the central bank increased borrowing costs by a total of 450 basis points between May 2022 and October 2023.
Headline inflation accelerated for the third consecutive month, increasing from 3.7 percent in March to 3.8 percent in April.
Inflation in April was within the BSP’s target range of 2 to 4 percent for the fifth consecutive month.
The central bank’s projected 3.8 percent annual inflation rate was not met by the first four months of inflation, which averaged 3.4 percent.
“The Philippine central bank’s May 16th meeting is likely to see a hold on interest rates. This aligns with their recent cautious approach and the need to balance inflation control with economic growth,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail.
“Additionally, external factors like rising global interest rates and potential capital flight could lead the BSP to maintain current rates to ensure competitiveness and manage inflation expectations,” Roces added.
However, Roces noted that the BSP’s choices beyond May may be influenced by the US Federal Reserve’s policy decisions, peso performance, and May inflation figures, all of which should be closely watched.
UnionBank Chief Economist Ruben Carlo Asuncion said that the Monetary Board will not lower borrowing rates until the effects of El Niño have subsided, the local food supply has returned to normal, and the inflation rate for rice has decreased.
He also mentioned impending threats to the inflation forecast, including potential increases in the minimum wage and Middle East geopolitical unrest.
“We are still at the stage when the best we can say is for inflation in the coming months to plateau or stabilize in and around four percent, while we wait for the downside to come in the third quarter,” Asuncion said.
Analysts also expect the BSP to maintain current rates given the recent decline in the Philippine Peso.
The local currency lost four centavos from its P57.38 closing on Thursday to settle at P57.42 against the dollar on Friday. Amid the growing crisis in the Middle East, the peso depreciated to P57 in April.
“We expect the BSP to remain on hold at the next meeting given the still elevated inflation rate and high pressures on the peso from the stronger US dollar,” Makoto Tsuchiya, an economist from Oxford Economics, said in an e-mail.
HSBC’s economist for ASEAN, Aris Dacanay, said that the BSP is not in any rush to begin monetary easing or to raise policy rates.
Dacanay observed that the odds are currently stacked against inflation. Additionally, the government’s Administrative Order 20, which eliminates non-tariff obstacles to food imports, will enhance the quality of the food supply and contribute to a reduction in inflation.
While GDP growth in the first quarter grew weaker than anticipated, at 5.7 percent year over year, Dacanay added that the BSP will not lower policy rates.
Furthermore, he stated that even if base effect causes inflation to exceed the target, this would only be momentary and that inflation would probably return to within the target range as early as August or September.
“We do not think there is a need to hike to support the peso and prevent any forex-induced inflation, nor is there a need to tighten the monetary reins further to tame inflation. All is well, in our view,” Dacanay said.
“All things considered, this growth rate does not warrant any early policy rate cut…With growth intact, the BSP continues to have the luxury to keep its monetary stance tight while the Fed maintains a more hawkish tone,” Dacanay said. (TCSP)
