BSP downshifting at 25 bps increase

Although we expect the central bank to sustain its rate hike cycle, we could see Governor Felipe Medalla downshift to a 25bp increase

As the inflation rate reported a slower year-on-year expansion in February, economists are looking at a Bangko Sentral ng Pilipinas benchmark interest rate hike by 25 basis points later this week.

They made several statements ahead of the policy-making Monetary Board meeting on 23 March as the country’s inflation rate slightly eased to 8.6 percent in February from 8.7 percent last January.

According to ING Bank, BSP Governor Felipe Medalla recently hinted at a less aggressive rate hike when he called for rapidly deploying supply-side measures to address the tight supply of essential food items.

“Although we expect the central bank to sustain its rate hike cycle, we could see Governor Felipe Medalla downshift to a 25bp increase,” economists from ING Bank wrote on its website.

“Recent developments in the global banking system will also be watched closely; thus, we believe that next Thursday’s hike could be the last for this tightening cycle,” they added.

Union Bank of the Philippines chief economist Ruben Carlo Asuncion also expects BSP to raise another 25bps in the March meeting.

“Depending on succeeding inflation prints and results of survey expectations, (there could be another) another 25bps for the next meeting. Thus, this is a terminal rate expectation of about 6.50 percent,” Asuncion said.

China Bank chief economist Domini Velasquez mentioned that the country’s inflation remains hot for now but will likely steadily come down as the year progresses.

“We think the BSP will raise its policy rate by a smaller 25-bp hike next week. It is (the) last before keeping the rate steady at 6.25 percent for the rest of the year,” Velasquez told Daily Tribune in a Viber message.

She pointed out that the core consumer price index in the country is still on an uptrend and is expected to peak this March or April.

March pause expected

“Our base scenario is that BSP will pause after the March meeting,” Velasquez said.

She added that there are already some downward pressures on inflation, such as lower vegetable prices, possible cut in transport fares, and lower airline charges, among others.

“However, upside risks still dominate such as petitions for wage hike increases and current demand-supply imbalance of certain food items,” Velasquez said.

In a separate commentary, HSBC Global Research said a 25 basis points increase in the BSP rates is still possible since it is “difficult to conclude whether inflation already peaked given the extent to which inflation spilled over to other goods and services.”

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