Another policy rate hike ‘on the table’

By Melissa Luz T. Lopez
Senior Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) may still gun for another interest rate hike next month, a senior monetary official said even as he noted that inflation could clock in slower from here on.
Asked whether further policy tightening is being considered, BSP Deputy Governor Diwa C. Guinigundo replied: “Well, I think it is something on the table.”
“I don’t think at this point we are in the position to say we should pause or we should do another one, whether 25 or 50 basis points (bp). Although I’ve been saying that we need to maintain our vigilance with strong tightening bias,” Mr. Guinigundo said in an interview late Monday.
The Monetary Board has fired off a total of 150bp hikes since May, including a back-to-back 50bp increase in August and September to temper inflation expectations. Monetary authorities took these successive steps as inflation surging to consecutive nine-year highs, with the nine-month average now at five percent versus the central bank’s 2-4% target range for full-year 2018.
In deciding to raise interest rates in their Sept. 27 review, policy makers noted that inflation is likely to remain high for the rest of 2018 due to additional wage adjustments, transport fare hikes, higher electricity rates and a faster-than-expected rate hike in advanced economies.
The Monetary Board has held six policy reviews, so far, and will conduct the year’s remaining two meetings on Nov. 15 and Dec. 13.
“It all depends on the kind of data that we will be seeing between now and (November),” Mr. Guinigundo said.
Inflation surged to 6.7% in September, the fastest pace seen since February 2009. The BSP estimates 2018 inflation to settle at 5.2% before easing to 4.3% next year.
“Inflation expectations appear to be normalizing because the market appears to have appreciated the fact that inflation seems to have peaked, and that it’s coming down,” the BSP official added.
Earlier this month, Monetary Board (MB) Member Felipe M. Medalla said that the plan to remove rice import quotas and allow any private firm to source the crop abroad could shave 0.7 percentage points off headline inflation, adding that monetary authorities may “take a pause” should latest month-on-month inflation show signs of easing. MB Member V. Bruce J. Tolentino also took on a dovish tone in a recent Bloomberg interview.
Several bank economists are expecting a 25bp rate hike from the central bank during its next policy review, citing the need to keep real interest rates competitive.
Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, said last week that non-monetary measures introduced by the national government have begun to “take root” and rein in food costs, which have led overall price increases in recent months.
“The fruits of such measures are now being reflected on the ground, validating our earlier expectation that inflation had peaked in September, affording BSP some leeway to pause at its November meeting,” Mr. Mapa has said.
The Philippine Statistics Authority will report five key macroeconomic data sets next week, including October inflation and third-quarter gross domestic product performance on Nov. 6 and 8.