FMIC-UAP sees BSP hiking policy rates

The investment banking arm of the Metrobank Group expects the Bangko Sentral ng Pilipinas to raise policy rate by 25 basis points in the second quarter as inflation is expected to peak to 4.6 percent by June.

In the latest issue of The Market Call Capital Markets Research, First Metro Investment Corp. (FMIC) and University of Asia and the Pacific (UA&P) said apprehensions about shortage in rice supply has pushed inflation to 4.3 percent in March from 3.8 percent in February.

“The reported shortage in rice my have skewed the data upward. While headline inflation may move up some more, we do not think it will exceed 4.6 percent for the rest of the year,” the report said.

With inflation reaching the upper limit of the government target, however, FMIC and UA&P see a policy rate adjustment soon.

“With inflation breaching the four percent upper limit of the BSP target, it is now more likely that the Monetary Board will raise its policy rates by 25 basis points in the second quarter,” the report said.

The growth outlook on the economy, however, remains rosy as other indicators point to expansion and positive consumer sentiment, FMIC said.

Importation of capital goods surged by 16.9 percent in January, indicating faster activity in the manufacturing sector. Factory output grew by 24.8 percent in February from 18.5 percent in January.

National government spending for infrastructure rose by 25.2 percent in January. Unemployment also eased to 5.3 percent in January, although underemployment remains a concern.

“The remarkable job creation reported in January, NG’s commitment to continue spending on various Build Build Build projects, the strong capital goods imports and other economic indicators pointing to a healthy growth, reinforce our view that the country will register a faster expansion in 2018,” the report said.

FMIC forecasts a growth of 7.5 percent for the economy this year.

For the first quarter alone, FMIC sees a growth rate of above seven percent, driven by gains in industrial output.

“Expansion in industrial output, led by manufacturing and construction, should lead the economy to an above seven percent growth in the first quarter,” the report said.