MANILA, Philippines – An economist expects upward adjustments in the Bangko Sentral ng Pilipinas’ (BSP) average inflation for this and next year as another sign of the possibility of further hikes in the central bank’s key rates.
The BSP revised its average inflation forecast for this year to 5.8 percent from 5.4 percent and to 4.3 percent from 4 percent for 2023, noting that inflation risks remain on the upside.
According to Rizal Commercial Banking Corporation chief economist Michael Ricafort, inflation will peak at around 8% in the fourth quarter of this year.
“Thus, further local policy rate hikes could still be possible in the coming months, as supported by generally strong economic data; also as a function of future Fed rate hikes as well as future peso exchange rate behavior,” he said.
The BSP’s policy-making Monetary Board (MB) raised the central bank’s key rates by 75 basis points on Thursday, mirroring the Federal Reserve’s adjustment earlier this month.
BSP Governor Felipe Medalla emphasized the importance of maintaining the interest rate differential between the United States and the Philippines, among other things, to mitigate the impact of a stronger dollar on the peso and ensure price stability.
According to Ricafort, the BSP rate hike next month “could also be a pre-emptive move on a possible further Fed rate hike of about +0.50 to 4.50% (upper range of the Fed target) on the next Fed/FOMC (Federal Open Market Committee) rate-setting meeting on Dec.14, 2022.”
“As a result, more local policy rate hikes are still possible in the coming months, if necessary, as a function of any further Fed rate hikes in the quest to bring down elevated US inflation/CPI (consumer price index),” he added.
Price pressures are expected to remain high in the coming nine months, preventing the rate of price increases from slowing to within the government’s target band.
“Without structural reforms in the agriculture industry, supply constraints are likely to persist,” it said in a report released on Thursday.
According to the report, “importation of food products may not provide sufficient relief because global food prices are also high.”
It expects inflation to range between 7.5 and 7.6 percent in November and December this year, before slowing in the first half of next year “if oil prices remain at current levels.”
“We anticipate that full-year average inflation will remain above the BSP’s 4 percent target in 2023,” it added.