LONDON-based Capital Economics and British banking giant HSBC are expecting the Philippine central bank to raise its policy rate by a further 25 basis points to 3.5 per cent in its monetary setting meeting today.
“Having raised the rates at its meeting in May for the first time since 2014, we think the BSP will follow through with another hike [this] week. But as inflation is seen to peak soon, that will probably mark the end of this tightening cycle,” Capital Economics said in a report, referring to the Bangko Sentral ng Pilipinas.
“The Fed (US Federal Reserve) up to this point may have just been a secondary consideration for the BSP, but last night changes things,” HSBC said in a research note dated June 14.
The bank was referring to the Fed’s signal that it might raise rates twice more this year, whereas many were expecting only one more hike after last week’s increase.
HSBC thus believes that the Fed’s most recent guidance would “factor in heavily” at the BSP’s meeting today, leading to the second 25-basis point rate hike for the year. “We don’t believe this marks the start of a tightening cycle for the BSP. In fact, we believe that with the exception of a more hawkish Fed and the recent dollar rally, domestic economic conditions no longer favour additional monetary tightening,” the research noted.
Capital Economics noted that last week, BSP governor Nestor Espenilla Jr gave a “little indication of the [central] bank’s next move, stating only that they will ‘be examining closely all the potential drivers of future inflation’.”
While the headline rate nudged up last month to 4.6 percent, it came in lower than expectation, both Capital Economics and HSBC noted.
“The [BSP’s] latest survey showed a slight moderation in inflation expectations,” Capital Economics added.
HSBC said it would bode well for the BSP to strike a more neutral tone after this week’s policy meeting “to stem any significant outflows and further weakness to the currency.”
“There are a few factors likely to push inflation higher over the next couple of months, including higher oil prices, a weaker peso and another increase in tobacco taxes,” Capital Economics said.