Policy rates could rise this quarter — report

THE BANGKO SENTRAL ng Pilipinas (BSP) may consider raising rates this quarter in the face of quickening inflation and faster economic growth, analysts at the First Metro Investment Corp. (FMIC) and the University of Asia & the Pacific (UA&P) said in their latest joint report.
“With inflation breaching the four-percent upper limit of the BSP target, it is now more likely that the Monetary Board will raise its policy rates by 25 basis points in Q2,” the economists said in the April issue of The Market Call.
The BSP’s Monetary Board will decide on interest rates on May 10, the third policy review for 2018. This will be followed by another review by June 21.
The BSP kept borrowing rates unchanged at 2.5-3.5% last month, unfazed by accelerating inflation despite observations from economists that the central bank is behind the curve as far as interest rates are concerned.
Inflation accelerated to 4.3% in March under the 2012-based consumer price index, led by a surge in the prices of cigarettes and alcohol as well as rice, according to the Philippine Statistics Authority. That was the fastest price pick-up in at least five years, bringing the three-month average to 3.8%, close to the ceiling of the BSP’s 2-4% target for 2018.
FMIC and UA&P expect inflation to hit 4.3% this month, 4.5% in May and 4.6% in June, shooting up from year-ago readings.
“We think that the uptrend in inflation will continue in the short-run but will start to decelerate once the effect of TRAIN has been fully felt by Q3,” the report read, referring to Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion law that took effect on Jan. 1.
Analysts have been calling for a rate hike from the BSP as early as last year, with some saying that the monetary authority is already behind the curve as global yields continue to rise following several tightening moves in the United States as well as from other central banks.
Monetary authorities said they are prepared to “take immediate and appropriate measures” to carry out the BSP’s mandate of price and financial stability, confident the economy can weather the impact of higher interest rates.
“Inflation for the next three months is not itself a basis for action… but if the forecast is that inflation will cover more commodities and will last longer, then that will call for a rethinking of the current policy stance,” Monetary Board Member Felipe M. Medalla said during the Development Budget Coordination Committee briefing on Tuesday.
Still, The Market Call said the outlook for the Philippine economy remains “rosy,” with initial indicators pointing to faster expansion in the first quarter and for the entire year. It sees sees growth clocking 7-7.5%, well within the government’s 7-8% goal for 2018. Investment spending led by the surge in public infrastructure is expected to be the “main driver” of growth alongside upbeat consumer spending.
Strong factory output and construction activity will also help provide a boost from the 6.4% growth seen during the first three months of 2017. — Melissa Luz T. Lopez