More banks see BSP hiking rates this month

MANILA, Philippines - More investment banks see the Bangko Sentral ng Pilipinas (BSP) raising its key policy rates from record low levels starting this month due to the continued build up in inflation pressures on the back of rising global oil and food prices.

Citigroup economist Jun Trinidad said the BSP is likely to raise its key interest rates by 50 basis points during their scheduled policy setting meeting on March 24.

“We believe a 50 basis point rate hike when the MB meets in March would signal a strong bias for action that follows recent hawkish talk in the MB’s last meeting and credible response to an oncoming inflation storm,” Trinidad stressed.

He pointed out that adjusting the overnight rates soon would also help correct the impression that a peso appreciation would be part of BSP’s anti-inflation tool kit.

In its latest Philippines Macroeconomic View, Citigroup said it expects the BSP to raise its key policy rates by 100 basis points this year, bringing the overnight borrowing rate to five percent assuming an oil price level of $100 per barrel.

However, the US-based investment bank said the rates could be raised by as much as 150 basis points to 5.5 percent if inflation average this year falls close to the higher end of the BSP’s inflation forecast of three percent to five percent.

“Our overnight rate forecast of five percent by end-December assumes an oil price level at $100 per barrel. If expected inflation’s end-year high of close to five percent in our forecast gets ‘accelerated’ by sustained oil price shocks, the possibility of BSP accelerating the schedule and size of the rate hikes to 5.5 percent cannot be ignored,” Trinidad added.

He warned that second round price effects would arise from intensified wage demands due to higher oil and food prices.

“We reiterate that key to faster rate tightening bias whether to accelerate or not will be strong evidence of second round price effects from the oil supply disruption shocks,” he said.

On the other hand, HSBC economist Sherman Chan said in a report that the BSP would likely cut its key policy rates by 25 basis points this month due to surging global oil and food prices.

“The BSP is unlikely to sit tight for long given that it monitors inflation closely and has had a credible inflation fighting record in recent years. Moreover, as officials put heavy emphasis on inflation expectations, the fact that there is hardly anyone who is not concerned about inflation means that the urge for monetary tightening is perhaps stronger than what the headline numbers warrant,” Chan said.

The British banking giant’s economist pointed out that the Philippines is not immune to global inflation concerns as price pressures are spreading. It expects the BSP to raise its key policy rates by 100 basis points this year.