Two-phased hike seen in policy rates this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas(BSP) is expected to increase its interest rates by a total of 50 basis points this year due to inflationary pressures, an economist said.

Bank of the Philippine Islands(BPI) chief economist Emilio Neri Jr. told reporters they are expecting the BSP to implement two interest rate hikes this year.

“What we’re looking at as a central scenario is two rate hikes, versus our expection at the beginning of the year that there will be none,” Neri said.

Neri said the first interest rate hike could be seen as early as March, depending on the results of February inflation.

“If it (inflation rate) increases significantly, then they really have to do a March rate increase,” Neri said.

February inflation data is expected to be delivered in March.

In January, the country’s inflation hit its highest in the last three years at four percent, due to higher prices of food, alcoholic beverages and tobacco products.

Despite the surprising January inflation, the Monetary Board retained monetary policy settings at the first rate-setting meeting for the year last Feb. 8. The Central bank, however revised its inflation forecast for 2018 from 3.4 percent to 4.3 percent.

The next monetary policy meeting of the BSP is scheduled on March 22.

“We’re hoping they won’t announce a hike in between the scheduled meeting because that will look like an emergency rate hike,” Neri said.

While Neri expects the first interest rate to happen in March, while the second one may happen some time in June or in the third quarter of the year.

The first rate hike is expected to add 25 basis points to the current three percent, bringing it to 3.25 percent.

When asked if inflation could increase above four percent next year, Neri said this is unlikely.

“Coming from a much higher rate this year, we don’t really see it going to five percent or higher[in 2019]. It should be lower next year,” Neri said.

The BSP is projecting inflation to hit 3.5 percent in 2019, higher than the initial 3.2 percent forecast.