BSP set to tighten further as inflation pressures broaden

From AB Capital's The Opening Bell: Three Moves

Event

A fourth consecutive BSP rate hike looks likely on Oct. 22, with 20 of 22 economists expecting 25bp to 5.25% and two expecting 50bp. September headline inflation rose to 7.2%, while core accelerated to 4.7%, strengthening concerns over second round effects despite weak domestic growth and persistent Php depreciation.

View

We think the rise in core inflation is more consequential than the headline spike because it suggests food and energy shocks are spreading into broader pricing decisions. With El Niño and wage adjustments still feeding through, the BSP has limited room to signal an imminent pause, although weak domestic demand argues against accelerating the tightening pace.

Catalyst

The key surprise would be a 50bp move or guidance pointing to another December hike. A 25bp increase may offer near-term Php support, but FX direction still depends heavily on US yields and oil. Fed futures favor an Oct. 28 pause, yet continue to price substantial tightening risk by December.

Action

In our view, another hike may support bank NIMs near term, but slower lending and higher credit costs could dilute the benefit. We favor BDO (top pick in banks) for its funding and balance sheet resilience, while remaining cautious on leveraged property developers and REITs given persistently elevated borrowing costs and discount rates.

Disclaimer: The information, analyses, and views contained herein is based on sources which we, AB Capital Securities, believe are reliable, but is not guaranteed by us and is not to be considered all inclusive. It is not to be construed as an offer or solicitation of an offer to sell or buy the securities herein mentioned. AB Capital Securities and its Directors and Officers and/or members of their families may have a position in the securities herein mentioned and may make purchases and/or sales of the securities from time to time in the open-market and otherwise.