BSP may raise rates by 25 bps on Oct 9, says US think-tank

The Bangko Sentral ng Pilipinas (BSP) may raise rates by 25 basis points on Oct. 9, its next rate-setting meeting, due to high inflation, GlobalSource said in its latest report on the Philippines.

GlobalSource, a US-based think-tank, said inflation could peak in the last quarter of the year or by September at the earliest.

“We are still looking at a later peak for inflation (September at the earlier) based upon observed persistence. This implies another 25 basis points hike in the next meeting and perhaps another 25 basis points before the year ends as there are also other factors at work — in particular, a sharply depreciating currency,” GlobalSource said in a report co-authored by former Finance Undersecretary Romeo Bernardo.

It said that a depreciating peso is expected to put upward pressure on domestic prices.

The central bank’s overnight borrowing rate is now at six percent while the overnight lending rate is eight percent.

GlobalSource also noted that apart from the effects of inflation, the absence of a strong fiscal stimulus had been a major reason for lower growth this year.

The economy expanded by only 4.6 percent in the first half of the year, slower than the 7.6-percent recorded in the same period last year.

GlobalSource said the government should stimulate the economy this year by accelerating infrastructure investment by September. The think-tank said government spending should be robust to stimulate growth.

“The government has already embarked on some social spending, but amounts have so far been minimal. But scope for a fiscal boost may be limited given the late timing and with large outlays in construction best undertaken in the summer months. We thus expect some of the activity to spill over to the succeeding year. Moreover, any planned fiscal boost will have to be very big to make an impact.