Moody’s Analytics, a unit of Moody’s Corp., said Monday it expects the Bangko Sentral ng Pilipinas to raise the policy rate by another 50 basis points to 4.25 percent on Thursday to rein in the elevated inflation rate.
“Bangko Sentral ng Pilipinas is expected to raise its overnight reverse repo rate by 50 basis points to 4.25 percent; although headline inflation moderated in August, core inflation rose to 4.6 percent year-on-year,” it said in a report.
Inflation slightly eased to 6.3 percent in August from 6.4 percent in July, pulled down by slower increases in the prices of fuel and food and non-alcoholic beverages.
The latest figure brought the average inflation in the first eight months to 4.9 percent, above the 2022 target range of 2 percent to 4 percent.
The depreciation of the peso against the US dollar contributed to the high inflation, as it made imported fuel and food more costly. The peso closed at an all-time low of 57.46 against the greenback on Sept. 16, before rebounding slightly to 57.40 on Monday.
Moody’s Analytics said the “strong GDP growth, a product of improving domestic demand, gives BSP the space to tighten monetary policy.”
Economic growth in the second quarter reached 7.4 percent, although this was slower than the revised 8.2 percent in the first quarter and 12.1 percent a year ago, on the sluggish performance of the agriculture and manufacturing sectors.
Despite the deceleration, the second-quarter performance was one of the highest in the region, next only to Vietnam’s 7.7 percent. It was faster than Indonesia’s 5.4 percent and China’s 0.4 percent.
The gross domestic product expanded 7.8 percent in the first half, above the upper end of the target range of 6.5 percent to 7.5 percent set by the government for the year.
The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, raised for the fourth time this year the benchmark interest rates by 50 basis points to 3.75 percent on Aug. 18.
This brought the total policy rate increase this year to 175 basis points. The BSP kept the policy rate at a record low of 2 percent in 2020 and 2021 to support the economy’s recovery from the pandemic.
Prior to the August rate increase, the MB surprised the market in an off-cycle move on July 14 by raising the benchmark policy interest rate by 75 basis points to 3.25 percent.
The BSP said it was prepared to take further policy actions to bring inflation toward a target-consistent path over the medium term, consistent with its primary objective to promote price stability.
The BSP also continues to urge timely implementation of non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices.
Inflation averaged 3.9 percent last year, lower than the upper end of the target range of 2 percent to 4 percent.
