By Melissa Luz T. Lopez, Senior Reporter
THE CENTRAL BANK may find room to raise rates by just 25 basis points (bp) this week, a bank analyst said, provided it comes with a hawkish statement from policy makers in order to temper further price pressures.
The Bangko Sentral ng Pilipinas (BSP) will reassess monetary conditions on Thursday and decide on benchmark rates. A BusinessWorld poll among economists saw seven betting on a 25-bp hike, while six are expecting the Monetary Board to turn aggressive and announce a 50-bp increase.
Several analysts expect a 50-bp rate hike as the realization of BSP Governor Nestor A. Espenilla, Jr.’s hints of a “strong policy response” as inflation surged to a nine-year high in June at 5.2%, with signs that prices spikes are becoming more widespread.
For his part, Standard Chartered Bank economist Chidu Narayanan said there is scope for a third 25-bp rate increase this week, which will match the BSP’s moves in May and June.
“BSP has stated its concern about inflation expectations, but a hawkish rhetoric is sufficient to reduce expectations, even with only a 25 bps rate hike,” Mr. Narayanan said via e-mail.
Benchmark rates currently range between 3-4%. The last time the BSP raised rates by 50 bps in one go was in July 2008, when inflation surged to a 17-year high at 12.2% against a 3-5% target that year.
Still, Mr. Narayanan did not dismiss a 50-bp rate adjustment for the upcoming meeting and said it could be “close call” on Thursday afternoon.
“Inflation is high and likely to remain so, supporting the case for a 50 bps hike (as the market is expecting),” the bank analyst said. “However, BSP is not worried about inflation, which it expects to fall to an average of 3.3% year-on-year in 2019 — this would make a 50 bps rate hike disingenuous.”
The final print for July inflation — which will be announced by the Philippine Statistics Authority today — will play a huge part in the BSP’s decision. Mr. Narayanan expects prices to have climbed faster at 5.6% last month, hitting a fresh high and remaining beyond the central bank’s 2-4% target.
“Accelerating inflation will likely prompt a hawkish rate hike from the central bank at its 9 August meeting; this would be the third straight hike,” the economist said, noting that the pace will quicken further this month before eventually easing back to target.
“Medium-term risks to inflation lie to the upside, in our view, on higher oil prices, a weaker currency or higher-than-expected infrastructure investment.”
On the other hand, Mr. Narayanan said the Philippine economy likely grew by 6.7% during the second quarter, which if realized will soften from the 6.8% pace clocked in during the first three months of the year.
A surge in infrastructure investments, coupled with robust household spending and strong factory output growth likely sustained the “strong, broad-based” domestic expansion, although short of the government’s 7-8% growth goal.

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