Pause in rate hikes imminent – think tank

MANILA, Philippines — A pause in rate hikes by the Bangko Sentral ng Pilipinas (BSP) is imminent despite the continued tightening earlier this month, according to UK-based think tank Pantheon Macroeconomics.

“We maintain that a pause from the Philippines’ central bank is imminent despite this month’s additional 50-basis-point hike to 3.75 percent,” said Miguel Chanco, emerging Asia economist at Pantheon Macroeconomics.

Prior to the BSP’s move to raise the key policy rate by another 50 basis points last Aug. 18, Pantheon Macroeconomics expected the central bank to pause and leave the key policy rate unchanged following the 75-basis-point hike during a surprise off-cycle meeting last July.

“The board has at least acknowledged that the battle ground has shifted, lowering its inflation forecasts for 2023 to 2024 for the first time,” Chanco said.

For next year, the BSP lowered the inflation forecast to four percent from 4.2 percent, while the projection for 2024 is now at 3.2 percent from 3.3 percent, previously.

“The turn in oil prices suggests that the lift from energy-related CPI (consumer price index) components looks set to fall to nothing as early as the first quarter from 2.9  percentage points  as of July,” Chanco said.

He said the BSP’s view that demand is holding “firm” does not square with reality.

Chanco said the Philippines’ gross domestic product (GDP) growth shrank in the second quarter by 0.1 percent quarter-on-quarter due to a slowdown in consumption.

The economy grew by 7.4 percent in the second quarter, slowing down from the revised 8.2 percent in the first quarter.

For the first half, the country’s GDP growth stood at 7.8 percent.

Inflation rose to 6.4 percent in July from 6.1 percent in June.

For the January to July period, inflation averaged 4.7 percent, higher than the BSP’s two to four percent target range.