The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, is expected to raise the key interest rate by another 25 basis points to 6.25 percent on Thursday as it attempts to prevent second-round effects from one of the “stickiest” inflation in the region, an international think tank said Monday.
Moody’s Analytics, a unit of Moody’s Corp., said in a report Monday central banks in the Asia-Pacific region—particularly in Australia, India, the Philippines and Vietnam—might keep raising interest rates while watching to see if tightening of lending standards did some of the heavy lifting for them.
“The outlook still assumes one or two more rate hikes by those central banks still fighting an inflationary upswing,” it said.
“In the Philippines, the overnight reverse repo rate is expected to climb 25 basis points to 6.25 percent. The country is battling some of the stickiest inflation in the Asia-Pacific region; headline inflation nudged down only to 8.6 percent year-on-year in February from 8.7 percent in January,” Moody’s Analytics said.
The BSP in February raised overnight borrowing rate by 50 basis points to 6 percent, bringing cumulative hikes to 400 basis points since May 2022. Moody’s Analytics said demand- and supply-side factors were driving inflation.
It said that on the demand side, the return of tourists had pushed up prices for accommodation, restaurant meals and transport. High gas prices were also a key supply-side factor.
“With inflation still too high, BSP will want to prevent what it calls the ‘emergence of additional second-order effects,’” it said.
It said the small easing of inflation in February, which contrasted with the BSP’s expectation for an increase, could give the central bank confidence to step back.
Hongkong and Shanghai Banking Corp. did not rule out the possibility of acceleration in inflation in the coming months despite the slowdown in February.
HSBC said in a report that food inflation remained “problematic” due to non-tariff barriers. “Despite the emergency importation of onions and sugar, the year-on-year rises in vegetables and tubers [33.1 percent] and sugar, confectionery and desserts [37.0 percent] were still above 30 percent. As argued in a previous note, the imposition of non-tariff barriers to these goods does not put a ceiling on how high prices can rise,” HSBC said.
HSBC said the momentum of inflation eased in February, but it remained difficult to determine the peak with confidence given the extent to which inflation was spreading to other goods and services.
BSP Governor Felipe Medalla said in a previous interview that monetary authorities remained hawkish and were ready to act accordingly if inflation in February continued to accelerate. He said the most likely scenario could be one more rate hike, but that could change depending on the trajectory of inflation.
The last time the policy rate hit 6 percent was in August 2008 during the global financial crisis.
The Monetary Board said in February that the latest baseline inflation forecast path had shifted higher relative to the previous assessment.
It predicted that average inflation would breach the upper end of the 2 percent to 4 percent target range at 6.1 percent in 2023, before returning to within target at 3.1 percent in 2024.
