A VENDOR arranges vegetables at a public market in Manila. Stubbornly high inflation may force the Bangko Sentral ng Pilipinas to continue tightening. — PHILIPPINE STAR/ RUSSELL PALMA

By Keisha B. Ta-asan, Reporter

PHILIPPINE BANK executives expect the Bangko Sentral ng Pilipinas (BSP) to deliver two more rate hikes this year to tame inflation and to mirror the US Federal Reserve’s adjustments.

Bank of the Philippine Islands (BPI) President and Chief Executive Officer (CEO) Jose Teodoro K. Limcaoco said he sees two more 25-basis-point (bp) rate hikes by the BSP this year.

“The BSP has to act in parallel with the Fed. Otherwise, the peso will weaken. If the peso weakens then that’s a cost for inflation so they’ve got to watch that,” Mr. Limcaoco told BusinessWorld on the sidelines of the annual reception for the banking community.

“If the Fed pivots, then I see the BSP pivoting also,” he added.

The US Federal Reserve raised the target interest rate by 25 bps last month, bringing its key rate to between 4.5% and 4.75% — the highest since 2007. Its next policy review is on March 21-22.

Since March 2022, the US central bank has raised borrowing costs by 450 bps. This has caused significant volatility in foreign exchange markets, causing the peso and other currencies to weaken against the dollar.

In October 2022, the peso slumped to a record low of P59 versus the greenback. It has since rebounded, closing at P54.82 on Friday.

“Our economists are saying maybe, possibly, up to 50 (bps) more (this year) before going down,” Union Bank of the Philippines President and CEO Edwin R. Bautista said.

He said the BSP might deliver an aggressive 50-bp rate hike at its March 23 meeting before pausing its tightening cycle, or it may opt for two 25-bp rate increases at its March and May meetings. 

“It depends though. Before the last (rate hike) came out, the consensus was it was toppish, it will be 25 (bps) but it became 50 (bps)… It really depends on how the Fed will come out,” he said.

After hiking by 400 bps since May 2022, the BSP’s Monetary Board increased interest rates by 50 bps on Feb. 16, bringing the key policy rate to 6%. This is the highest benchmark rate in nearly 16 years.

Meanwhile, Robinsons Bank President and CEO Elfren Antonio S. Sarte said the Monetary Board might do another 50-bp rate hike at its next meeting, as signaled by the BSP chief.

“With the literature and the signals, I’ll say 50 (bps) as a high. Hopefully, 25 (bps but) 50 is now on the table. Personally, it depends on how the Fed will do it,” he said.

“I’m hoping that we only have one or two hikes and (then) we’ll stop already. So hopefully if inflation comes down, we’ll see a lower rate increase,” he added.

BSP Governor Felipe M. Medalla on Friday said the Monetary Board might aggressively tighten policy rates if inflation breached the 9% level in February. 

“Well, the worst-case scenario is above 9%. If that’s the case, clearly, we have to do something,” he said.

A BusinessWorld poll of 17 analysts yielded a median estimate of 8.9% for February inflation, well within the 8.5% to 9.3% forecast by the BSP.

If realized, February inflation will be faster than the 14-year high of 8.7% in January and 3% a year earlier. It would also mark the 11th consecutive month inflation surpassed the BSP’s 2-4% target.

The local statistics agency is set to release February inflation data on March 7.

Mr. Sarte said rising interest rates may slow bank lending growth this year.

“Still, we are optimistic loans will still grow this year but maybe not be as strong as the prior years. With the economy opening up, maybe some businesses will still need working capital,” he said. 

Based on the latest central bank data, credit growth expanded at its slowest pace in nine months in January, reflecting the impact of rising interest rates.

Outstanding loans by big banks, net of reverse repurchase placements with the BSP, rose by 10.4% to P10.71 trillion in January from P9.7 trillion a year earlier.

This was lower than the revised 13.7% in December. — with inputs from Aaron Michael C. Sy