BANGKO SENTRAL ng Pilipinas Governor Eli M. Remolona, Jr. — BANGKO SENTRAL NG PILIPINAS

By Keisha B. Ta-asan, Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) may deliver an off-cycle rate hike as early as Thursday this week, its governor said on Tuesday.

BSP Governor Eli M. Remolona, Jr. on Tuesday said that an off-cycle interest rate hike is “on the table at the moment.”

“If the data say inflation will go up very significantly and there’s a risk of affecting inflationary expectations, then we may go for an off-cycle hike as early as this Thursday, or maybe next week,” he told reporters on the sidelines of the BSP’s Digital Financial Inclusion Awards.

Earlier this month, Mr. Remolona said he is not ruling out a 25-basis-point (bp) interest rate increase at the Monetary Board’s Nov. 16 policy-setting meeting, after inflation accelerated for a second straight month in September. He also noted that high interest rates have not affected the Philippines’ growth outlook so far.

The Monetary Board has raised borrowing costs by 425 bps from May 2022 to March 2023, bringing the benchmark rate to a near 16-year high of 6.25%.

However, economic managers have warned against further rate hikes, as inflation is being driven by supply-side factors and core inflation has slowed in recent months.

National Economic and Development Authority Secretary Arsenio M. Balisacan earlier this month said further monetary tightening could hurt the economy and consumers who are already struggling with high inflation.

Finance Secretary Benjamin E. Diokno has also said the BSP has “done enough” policy tightening to tame inflation, but future interest rate moves would remain data dependent.

The BSP sees average inflation settling at 5.8% in 2023, before moderating to 3.5% in 2024 and 3.4% in 2025.

However, results of the BSP’s survey of external forecasters in September showed the average inflation forecast of analysts for 2023 went up to 5.9% from just 5.5% in the August survey. Economists’ mean inflation forecast for 2024 and 2025 also climbed to 3.7% (from 3.5% previously) and 3.5% (from 3.4%), respectively.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa in an e-mail said it is highly likely that the BSP will raise interest rates this week given Mr. Remolona’s hawkish stance. 

“It appears he is preparing the market for a hike and market participants appear ready for such a move. BSP has reiterated its commitment to combat inflation and we believe a rate hike at this stage would no longer be to quell inflation for 2023 but rather to safeguard the 2024 inflation path,” he said. 

Mr. Mapa said market players are no longer looking at short-term price pressures, but at potential upside risks to the inflation outlook next year.

“Thus, the market is prepared for further tightening, whether it be this Thursday or next. There will be limited reaction to this off-cycle meeting,” he added.

Security Bank Corp. Chief Economist Robert Dan J. Roces in a Viber message said the month-on-month October inflation rate will be crucial. 

“To get above the previous rate of 6.1%, month on month will need to be steady at the last two months’ 1%. What this means is that inflation remains persistent and the base effects from the upticks last year will not be enough to pull the readings down, thus pure inflation uptrend,” he said. 

Mr. Roces added that the BSP would want to get ahead of this, especially amid geopolitical tensions in the Middle East.

Headline inflation rose for a second straight month to 6.1% in September from 5.3% in August. It marked the 18th straight month that inflation exceeded the central bank’s 2-4% target. Year to date, inflation averaged 6.6%.

The local statistics agency will release October inflation data on Nov. 7.

Neil Banzuelo