BSP seen hold­ing rates af­ter 5 con­sec­u­tive hikes

Manila Bulletin - - Front Page - By REUTERS

The Philip­pine cen­tral bank is widely ex­pected to keep in­ter­est rates steady on Thurs­day with in­fla­tion seen eas­ing fur­ther af­ter it slowed to a four-month low in Novem­ber, a Reuters poll showed.

Eleven out of 13 an­a­lysts polled ex­pect the cen­tral bank to leave the overnight re­verse re­pur­chase rate at 4.75 per­cent, af­ter hikes at each of the last five meet­ings raised it by a to­tal 175 ba­sis points (bps).

The other two fore­cast a fur­ther hike of 25 ba­sis points (bps) when the Bangko Sen­tral ng Pilip­inas (BSP) re­views mon­e­tary pol­icy on Dec. 13.

An­nual in­fla­tion eased for the first time in nearly a year in Novem­ber, slow­ing to 6.0 per­cent from 6.7 per­cent in the pre­vi­ous two months, when it had been its high­est rate in nearly a decade.

But core in­fla­tion, which strips out volatile food and fuel items, rose to 5.1 per­cent from Oc­to­ber's 4.9 per­cent, prompt­ing BSP Gov­er­nor Nestor Espe­nilla to say that "mon­e­tary pol­icy will need to stay vig­i­lant to keep in­fla­tion un­der firm con­trol."

"We ex­pect the BSP to take stock of its re­cent ac­tions at the De­cem­ber meet­ing, us­ing it to dis­cuss any need for fu­ture rate hikes and to guide mar­kets on the year ahead," said HSBC econ­o­mist Noe­lan Ar­bis, econ­o­mist at HSBC in Hong Kong.

An­a­lysts are split on the out­look for next year, with some ex­pect­ing the BSP to re­sume hik­ing rates as early as the first quar­ter. Oth­ers be­lieve the tight­en­ing cy­cle may be over and that the BSP's next move in 2019 may be a rate cut.

BSP Deputy Gov­er­nor Diwa Guini­gundo said av­er­age in­fla­tion in 2019 and 2020 could even be lower than the cen­tral bank's fore­casts of 3.5 per­cent and 3.3 per­cent, re­spec­tively, be­cause of eas­ing food and fuel prices.

With in­fla­tion seen re­turn­ing to within the cen­tral bank's 2-4 pct tar­get range next year, Cap­i­tal Eco­nomics econ­o­mist Alex Holmes said fur­ther rate hikes in 2019 are un­likely.

But HSBC's Ar­bis said fresh price pres­sures could arise from a se­cond tranche of ex­cise tax in­creases that would jus­tify a 25 bps hike in first quar­ter.

Pres­i­dent Ro­drigo Duterte on Tues­day ap­proved a fur­ther hike in ex­cise tax on fuel prod­ucts from Jan­uary 2019, re­vers­ing an ear­lier stance to post­pone it fol­low­ing a slide in global oil prices.

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