BSP to hike rates anew in Q4

The Bangko Sentral ng Pilipinas is expected to tighten policy rates anew in the fourth quarter of the year, First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UA&P) said in a recent report.

Inflation in the first half of the year will prompt the central bank to further adjust policy rates.

“Coupled with faster uptick in inflation in H1, we think that the BSP will raise policy rates again towards ... Q4 of 2018 by another 25 bps,” the report read.

In the June 2018 edition of The Market Call, both FMIC and UA&P said they expect at least one more hike from the BSP, expected in the fourth quarter of the year. According to the Philippine Statistics Authority, inflation accelerated by 4.6 percent in May, the fastest in at least five years.

The BSP tightened key policy rates by 25 basis points last week, raising the overnight borrowing rate to 3.5 percent, overnight lending to 4 percent, and overnight deposits to 3.0 percent. The BSP's policy-setting Monetary Board also increased rates by 25 basis points during its meeting on May 10.

“Despite a slightly faster uptick in money growth in April due to the 1-percent reduction in reserve requirement, this will also slow down in H2— forestalling the need for another policy rate hike until Q4,” the report noted.

The BSP has said that money supply grew by 14.2 percent in April, slightly slower than the 14.4 percent in March.

The Monetary Board has reduced banks' reserve requirement ratio by one percentage point to 18 percent starting June 1. It was the second reduction so far this year.