Brace for more rate hikes until December

MANILA, Philippines — Economists see more rate hikes for the remainder of the year as the Bangko Sentral ng Pilipinas (BSP) intensifies efforts to tame soaring inflation and stabilize the peso.

ING Bank senior economist Nicholas Mapa said the BSP would continue balancing its inflation fight, while ensuring the economy could grow fast enough to outrun debt.

“Expect further tightening from the BSP at the last two meetings,” he said.

The remaining rate-setting meetings of the BSP are scheduled on Nov. 17 and Dec. 15. It has so far raised key policy rates by 225 basis points, bringing the benchmark rate to 4.25 percent, the highest since 4.50 percent in June 2019.

ING sees the overnight reverse repurchase rate hitting five to 5.25 percent by the end of the year.

Due to the hawkish US Federal Reserve and higher demand for the dollar as the Philippine economy further reopens, the peso has been hitting new record lows over the past few weeks.

“Not much emerging market central banks can do versus a hawkish Fed,’’ Mapa said.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., said more local policy rate hikes are still possible in the coming months, as a function of any further US Fed rate hike to tame runaway inflation.

Ricafort said the benchmark rate is seen ending the year at 5.25 percent or 5.50 percent.

He added that any further policy rate hikes by the BSP would also be partly a function of how the peso exchange rate behaves and the impact of actual inflation data as well as inflation expectations.

Ricafort said higher local policy rates can lead to an increase in borrowing costs that could lead to lower earnings and valuations as well as slow down the economy as an unintended consequence in the quest to fight off inflationary pressures.

Bank of the Philippine Islands lead economist Jun Neri said upside risks could continue to push inflation higher in the coming months and may peak at seven percent in October and stay above 6.5 percent until the end of the year.

The bank sees inflation accelerating to 5.5 percent, well above the BSP’s two to four percent target, from 3.9 percent last year.

“Considering the uncertainties both here and abroad, we expect the BSP to hike again in the last two meetings of the year, up to 5.25 percent depending on what the Fed will do and the behavior of the exchange rate,” Neri said.

ANZ Research chief economist Sanjay Mathur and economist Debalika Sarkar see a smaller 25-basis-point hikes for the November and December rate-setting meetings of the BSP.

“For our part, we forecast hikes of 25 bps each in the November and December policy meetings. However, the evolution of inflation, balance of payments and extent of further tightening by the US Fed may reshape our assessment,” Mathur and Sarkar said.