Deutsche Bank says more BSP rate hikes necessary

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Succeeding rate hikes may be needed for the Bangko Sentral ng Pilipinas (BSP) over the coming years in order to arrest faster inflation and keep the peso competitive, a global bank said.

Deutsche Bank said the decision of the central bank to raise policy rates by 25 basis points (bp) would not be enough to rein in inflation, adding that overheating risks continue to persist as price pressures escalate.

“Last month’s rate hike seems not to have improved market sentiment, with the currency continuing to depreciate. We expect this to continue, albeit at a slower pace by year-end, and with inflation risks to the upside we expect at least four more rate hikes from BSP this cycle,” bank economist Michael Spencer said in a report published Friday.

The BSP decided to hike rates during their May 10 review as inflation continues to breach the 2-4% target, which they said was a preemptive move to temper inflation expectations among market players.

Inflation has averaged 4.1%, with the May reading clocking a fresh five-year peak at 4.6%. — Melissa Luz T. Lopez