Stanchart sees 3rd rate hike in Aug

British banking giant Standard Chartered Bank (Stanchart) said the Bangko Sentral ng Pilipinas (BSP) may raise interest rates anew next month as the back-to-back rate hikes are not enough to curb rising inflationary pressures.

In a report, Chidu Narayanan, economist at Stanchart, said the Philippines is one of the countries with the most loose monetary stance in the region despite the 50 basis point rate hike in May and June.

“We expect a third hike in August as inflation rises beyond five percent. BSP signaled an openness to further hikes at its June 20 meeting, after showing earlier reluctance. This increases the likelihood of further action if inflation continues to rise,” he said.

The BSP lifted benchmark rates by 25 basis points for the first time in more than three years last May 10 to curb rising inflationary pressures and was followed by another 25 basis point hike last June 20 as inflation expectations remained elevated for this year.

“We expect inflation to rise further in the third quarter, likely peaking in August at 5.6 percent year-on-year before edging lower in the fourth quarter due to a high base,” Narayanan said.

Inflation rose to a fresh fiveyear high of 4.6 percent in May from 4.5 percent in April due to higher oil prices and the impact of the implementation of Republic Act 10963 or Tax Reform for Acceleration and Inclusion (TRAIN) Law.

This brought the average inflation to 4.1 percent in the first five months of the year, exceeding the two to four percent target set by the BSP.

The British bank sees inflation averaging 4.8 percent this year and 4.4 percent next year, higher than the BSP’s revised forecast of 4.5 and 3.3 percent, respectively.

“We see upside risks to inflation from higher oil prices and a weaker currency,” he said.