THE BANGKO Sentral ng Pilipinas (BSP) may hike rates again this year, with inflation not expected to return to its target amid an increase in spending during the holiday season, analysts said.
“I do think BSP can hike by another 25 basis points (bps) on Nov. 16 and stay at 6.75% until the second half of 2024. That’s enough time to restrict further inflationary expectations,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.
A rate hike could also be necessary at the November meeting to maintain an ample rate differential with the US central bank and stabilize the peso, Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said in a Viber message.
The central bank is more likely to keep its key policy rate unchanged than hike by 25 bps at its Nov. 16 meeting, BSP Governor Eli M. Remolona, Jr. said on Friday.
Mr. Remolona said a “really bad” development on inflation may prompt the Monetary Board to hike rates by 50 bps at its Nov. 16 meeting, but he does not expect that to happen.
The Monetary Board resumed tightening monetary policy as it delivered a 25-bp rate hike in an off-cycle move last week. This brought the key interest rate to a fresh 16-year high of 6.5%.
Rates on the overnight deposit and lending facilities were also raised by 25 bps to 6% and 7%, respectively. The BSP’s first policy move in seven months brought the cumulative rate increases since May 2022 to 450 bps.
Meanwhile, the US Federal Reserve’s target rate is at 5.25-5.5%.
“Rates will remain elevated until inflation is not tempered,” Oikonomia Advisory & Research, Inc. President and Chief Economist John Paolo R. Rivera said in a Viber message. “Inflation will likely not fall within target by this last quarter of 2023 as holiday consumption is not responsive to rate hikes.”
Rate hikes could help in slowing consumption and loan demand, which would cause inflation to ease, but aren’t that effective in managing supply-side issues, Mr. Rivera added.
Security Bank’s Mr. Roces sees inflation easing to the BSP’s 2-4% target by January or February next year but rising again in March if food prices remain elevated.
Mr. Remolona last week said they expect inflation to ease “very briefly” in the first quarter of 2024 but remain above target from March to July before returning within the 2-4% goal late next year.
He said their staff’s risk-adjusted forecast for 2024 rose to 4.7% from 4.3% previously, well above the 2-4% target range.
Headline inflation quickened to 6.1% in September from 5.3% in August, marking the 18th straight month that inflation exceeded the central bank’s 2-4% target.
For the first nine months, inflation averaged 6.6%.
The BSP could keep rates steady if inflation remains within their expectations, RCBC’s Mr. Ricafort said.
The central bank could cut rates late next year if the Fed begins easing, he added. — A.M.C. Sy