Higher rate hike seen this month

The Bangko Sentral ng Pilipinas (BSP) is expected to deliver a higher rate hike this month as inflation blew past expectations, hitting a new 14-year high at 8.7 percent in January from 8.1 percent in December, according to S&P Global Ratings and bank economists.

In a report, S&P chief economist percent in the Philippines in for Asia-Pacific Louis 2022. Kuijs said the Philippines, The Philippine Statistics Australia and New Zealand Authority (PSA) reported are more prone to rate rises yesterday that headline inflabecause of elevated core intion blew past expectations, flation. hitting 8.7 percent in Janu

“In Australia, New Zeaary and exceeding the BSP’s land and the Philippines, the forecast of 7.5 to 8.3 percent. case for central banks to raise This was the highest since policy rates further seems the 9.1 percent recorded in strong,” Kuijs said. November 2008.

According to the debt Inflation was recorded at watcher, core inflation rose only three percent in the same throughout 2022 and reached month last year. an average of 0.7 to 0.9 percent Core inflation likewise aca month in the fourth quarter celerated to 7.4 percent in amid resilient domestic deJanuary from 1.8 percent in mand. the same month last year. Core

Core inflation averaged 8.6 inflation is the change in the cost of goods and services, excluding those from the food and energy sectors.

“In many economies, modest core inflation momentum suggests limited or no further monetary policy tightening this year. But in some economies, recent hefty increases in core prices are forcing central banks to consider more rate hikes. Australia, New Zealand and the Philippines belong in this group, in our view,” Kuijs said.

Kuijs said the elevated core inflation in recent months is fueling expectations of further policy rate increases.

The BSP raised key policy rates by 350 basis points, which brought the benchmark interest rate to a 14-year high of 5.50 percent last year from an all-time low of two percent.

Aris Dacanay, economist for ASEAN at HSBC, said the January consumer price index (CPI) sprinted past expectations as supply challenges persisted, demand pressures remained strong and second round effects reverberated.

“No one saw it coming. In fact, the market expected it to go down,” Dacanay said.

Given the enormous upside surprise in CPI and supported by a strong gross domestic product (GDP) growth of 7.2 percent in the fourth quarter of last year, Dacanay said the upside risk of another punchy rate hike in February was higher.

The first of the eight ratesetting meetings of the BSP is scheduled on Feb. 16.

The British banking giant said headline inflation in the Philippines was the highest in 14 years and the highest in ASEAN, while core inflation was the highest since April 1999.

Dacanay said inflation in the Philippines has yet to reach the peak, while inflation rates in most of ASEAN have been treading downward since the fourth quarter of last year.

“This was the 11th consecutive month of inflation accelerating. And momentum is still relentless,” Dacanay said.

He said the chance of a higher rate hike by the BSP this month is higher.

“Given the eye-watering rise in prices, risks are on the upside when it comes to our baseline forecast of a 25-basispoint increase by the BSP next week – more so given the higher-than-expected GDP growth of 7.2 percent year-onyear in the fourth quarter of 2022, which brought the fullyear growth to 7.6 percent, the highest in the last 46 years,” Dacanay said.

ING Bank senior economist Nicholas Mapa said the BSP may raise key policy rates by 50 basis points instead of 25 basis points next week.

“We penciled in a 50-basispoint rate hike for the first half, but given today’s inflation report, we could see the BSP front-loading hikes to next week,” Mapa said.

Mapa explained that both monetary and fiscal measures are needed to bring inflation, driven by a confluence of supply and demand factors, lower.

“We’ve been flagging how broad-based inflation was becoming, with now more than 70 percent of the CPI basket with inflation above target and nine out of 13 sub-categories reporting inflation past four percent,” Mapa said.

Both BSP Governor Felipe Medalla and Finance Secretary Benjamin Diokno earlier said inflation already peaked at 8.1 percent last December.