ING sees BSP rate hike in September

The Monetary Board of the central bank is expected to vote another 25 basis points increase to its key overnight rate next month to temper an inflation run that could still breach six percent this year, according to ING Bank.

The Bangko Sentral ng Pilipinas (BSP) just raised policy rate by 50bps last August 9, its third rate hike since May this year. ING Bank senior economist in Manila, Joey Cuyegkeng, thinks this is not enough to contain inflation and that another round of adjustments is a must to control inflation and to “help moderate” peso weakness.

“We expect the tightening to continue with another 25bps hike as early as the September meeting or as late as the November meeting,” said Cuyegkeng. “We continue to see upside risk on the inflation front especially with the latest reports of rice prices continuing to rise while supply-related constraints also compounding the pressures.”

Despite the BSP’s pronouncements that inflation will not likely exceed six percent for either August or September but might slightly top July’s 5.7 percent, the ING economist disagreed, that it is highly probable inflation could breach six percent this month and in September.

“If our view is correct then further tightening is likelier. We expect growth to slow as BSP addresses the imbalance in the external payments position by moderating private sector import demand,” said Cuyegkeng. The second quarter GDP numbers showed the economy only grew by six percent, lower than the first quarter’s 6.6 percent and same period in 2017 of 6.7 percent.

The BSP’s continued rhetoric of further action when warranted, has helped the peso gain some small ground versus the US dollar. On the days following the August 9 rate hike, the peso strengthened enough back to a low of 153, but a week later returned to 153.49.

According to Cuyegkeng, the peso weakened along with most of regional currencies during the week. Also, he said: “the effect of the aggressive BSP policy rate hike of the previous week has worn off but the continued hawkish stance moderated any weakness. Mid-month demand from importers also pushed peso to weaken,” he said.