Standard Chartered Bank sees 5.8% inflation peak in August

MANILA, Philippines — Standard Chartered Bank said inflation may peak at 5.8 percent in August, prompting the Bangko Sentral ng Pilipinas (BSP) to hike rates for the third time this year next month.

Chidu Narayanan, economist for Asia at Standard Chartered Bank, said inflation is expected to edge up further in the third quarter and average 4.9 percent this year before easing to 4.4 percent next year.

The BSP has set an inflation target of two to four percent for both 2018 and 2019.

Inflation leapt to a fresh five-year high of 5.2 percent in June from 4.6 percent in May, bringing the six-month average to 4.3 percent due to higher oil prices, the weaker peso as well as the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

The Monetary Board raised interest rates twice this year through back-to-back rate hikes in May and June to curb rising inflationary pressures.

It lifted interest rates by 25 basis points for the first time in more than three years on May 10 followed by another 25 basis points last June 20.

“We reiterate our expectation that the BSP will hike policy rates in August for a third consecutive time. We expect inflation to edge up further in July-August, increasing pressure on the BSP to act. Market expectations are moving slowly towards our forecast,” he said.

Narayanan expects the BSP to maintain an open statement at its August and September meetings.

“We expect the BSP to pause after its August meeting to evaluate the impact of three successive rate hikes. Inflation is likely to slow (albeit remaining elevated) in Q4, reducing pressure on BSP to hike further,” he said.