By Melissa Luz T. Lopez
THE BANGKO SENTRAL ng Pilipinas (BSP) may find room to keep interest rates unchanged this week amid signs that inflation may be slowing, economists said in a poll even as they kept the window open for another hike later this year.
Six out of 10 economists asked by BusinessWorld said the Monetary Board will likely keep further policy tweaks at bay during its policy meeting on Wednesday, its fourth review this year.
Analysts took note of easing inflation momentum as they priced in status quo from the central bank, which follows a rate hike announced at monetary authorities’ May 10 meeting.
“The BSP might keep its policy rates steady during its meeting this month, despite the hawkish move of the US Federal Reserve, as inflation pressures in the domestic economy seem to have moderated,” Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines, said in an e-mail.
The government reported a 4.6% inflation rate in May, a fresh high in at least five years but slower than a 4.9% market estimate. The pace picked up for the fifth straight month from April’s 4.5% and kept the five-month average at 4.1%, above the BSP’s 2-4% target for full-year 2018.
Compared to the preceding month, however, inflation was zero in May as prices overall, steadied from their levels in April, which like March saw a 0.52% month-on-month climb that was slower than February’s 0.7%.
The BSP’s Monetary Board is also expected to discuss the outlook on world crude prices and foreign exchange swings.
“I do not expect any change in the key local policy rates in the next monetary policy-setting meeting, especially if crude oil prices continue to hover at near two-month lows (amid expectations that some OPEC members could raise oil production output) and if the USD/peso exchange rate movements remain relatively orderly in the coming days prior to the June 20 meeting,” said Michael L. Ricafort, economist at Rizal Commercial Banking Corp.
The peso has pierced the P53 level against the dollar last week and even hit a fresh 12-year low on Thursday at P53.27 to $1.
Wednesday’s policy review comes a day earlier than the usual Thursday policy meetings done every six weeks due to “tight” schedules of central bank officials, the BSP had explained.
BSP Governor Nestor A. Espenilla, Jr. has said that policy makers have to navigate a “fairly complex” environment as they review benchmark rates, with the focus on future domestic inflation vis-à-vis a robust local economy and emerging developments in global financial markets.
Four analysts, however, believe that the BSP could raise policy interest rates by another 25 basis points (bp) on Wednesday.
Angelo B. Taningco, economist at Security Bank Corp., said conditions are ripe for a rate hike in order to temper inflation and the peso’s depreciation. “I believe the Fed’s recent decision to raise its policy rate and its latest projection depicting a steeper rate hike path amid its hawkish tone would be a key reason for the BSP to conduct another rate hike,” he said.
The Fed raised rates by 25bp at its June 12-13 meeting — the second hike this year — as inflation and job creation goals were met.
For Nomura’s Euben Paracuelles, a tightening move from the BSP a week after the Fed’s similar move would be “well-justified.”
Most of the analysts said the BSP will introduce at least one more rate hike this year, with some looking at the next policy review on Aug. 9.