DOF sees small or no rate hike by BSP

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may pencil in a smaller 25-basis-point rate hike or even keep policy setting unchanged this week amid expectations of a less aggressive US Federal Reserve.

In a forum hosted by the Foreign Correspondents Association of the Philippines yesterday, Finance chief and Monetary Board member Benjamin Diokno said recent developments in the global financial market would likely make the Fed less hawkish in its rate setting on Wednesday.

These include the collapse of the Silicon Valley Bank and Signature Bank in the US, as well as the crisis faced by Credit Suisse in Europe.

A softer move by the Fed will likely push other central banks in the world, including the BSP, to mimic just the same. The BSP will hold its policy meeting on Thursday, March 23.

“The option now is not to hike or hike by 25 basis points,” Diokno said.

“I think the Fed will become less aggressive. So it’s more likely a 25 bps adjustment and central banks all over the world are taking note of the situation and maybe they will slow down their hiking of the interest rates,” he said.

The BSP has already hiked policy rates by 400 basis points, bringing the benchmark rate to 16-year high of six percent, from an all-time low of two percent.

Some economists are also saying that the possible increase on Thursday could be the last for the BSP.

“I think now, we are more likely to have 25 bps or geared toward the likelihood of a halt or steady, we might hold it for a while knowing that there are so many uncertainties,” Diokno said.

He noted, however, that the decision would still rely on the other six members of the BSP’s Monetary Board.

In terms of inflation, Diokno is choosing to be more optimistic, noting that the headline rate could decline to around four percent toward the end of the third quarter.

This is slightly earlier than the BSP forecast of inflation cooling to four percent only by the fourth quarter and hitting the midpoint of the target band by 2024.

“My optimism is that because the price of oil has been declining, the peso has been appreciating and we have put in place mechanisms to control the price of food items,” Diokno said.

Inflation slightly eased to 8.6 percent in February from a 14-year high of 8.7 percent the month before. This was driven by food and non-alcoholic beverages, rising by 10.3 percent and equivalent to close to 60 percent to the overall inflation.

The government already said it would intensify the implementation of programs that would help boost production and enhance agricultural productivity, reduce restrictions and ensure the timely importation of commodities with supply deficits, and strengthen ground monitoring and assessment.