Nomura: More rate hikes coming as core inflation picks up
MANILA, Philippines — Japan’s Nomura forecast the Bangko Sentral ng Pilipinas will raise interest rates, with two 25 basis point hikes in tow before it hits the pause button, as inflation remains a pressing concern.
In a commentary on Thursday, the Japan-based investment bank noted that accelerating core inflation, which hit 8% year-on-year in March, will likely compel more rate action.
Core inflation, computed without volatile items such as fuel, remained high. Nomura echoed concerns laid out by the Philippine Statistics Authority on Wednesday, which spotlighted food service costs climbing higher as transport costs remain pricey.
“In our view, Bangko Sentral ng Pilipinas is likely to see this pick-up as a sign of more persistent second-round effects and is therefore a concern,” the commentary read.
Nomura projected that the BSP will inject two more 25 bps rate hike in May and in June before it pauses its aggressive monetary policy actions.
Interest rates currently stood at 6.25%, as the BSP began tightening in May last year to combat rising inflation. These rate hikes typically take 6 to 18 months before it seeps into the domestic economy.
Central banks typically raise borrowing costs to temper consumer spending. The BSP has raised its key policy rate by 425 bps.
That said, headline inflation decelerated in March. Consumer price growth slowed to 7.6% year-on-year, as food prices eased despite persistent supply bottlenecks.
The Japan-based investment bank likewise kept its inflation outlook, averaging 5.8% this year. This projection already factored in inflation’s peak, as Nomura expects consumer price growth to slow further before the end of 2023.
As it is, this forecast stood above the BSP’s 2-4% target.
That slowdown could take firmer shape in July, as Nomura forecast a month-on-month decline on inflation will be clearer in the third quarter.
The investment bank saw relief coming in 2024. Nomura indicated that the BSP will cut its benchmark rates starting March next year, totalling 125 bps slashes that will see the interest rate hovering at 5.5%.
“Still, we acknowledge elevated uncertainty surrounding our BSP forecasts, owing to several global risk factors at play, particularly commodity prices,” Nomura added. — Ramon Royandoyan
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