Ex­pect an­other 100 bps rate hike, says think tank

The Philippine Star - - BUSINESS - By LAWRENCE AGCAOILI

Lon­don-based Cap­i­tal Eco­nom­ics ex­pects the Bangko Sen­tral ng Pilip­inas (BSP) to fur­ther raise in­ter­est rates by an­other 100 ba­sis points (bps) be­fore the end of the year as in­fla­tion con­tin­ues to spi­ral out of con­trol.

In its lat­est emerg­ing Asia eco­nomic out­look ti­tled “Grad­ual slow­down to con­tinue,” the think tank said in­ter­est rates in the Philip­pines are set to rise fur­ther over the com­ing months as the cen­tral bank looks to clamp down on ris­ing in­fla­tion­ary pres­sures.

The BSP’s Mon­e­tary Board has so far raised in­ter­est rates by 150 bps bring­ing the overnight re­verse re­pur­chase rate to 4.50 per­cent in four con­sec­u­tive rate-set­ting meet­ings to keep in­fla­tion ex­pec­ta­tions well an­chored.

The cen­tral bank lifted in­ter­est rates by 25 bps for the first time in more than three years last May 10 fol­lowed by 25 bps on June 20, 50 bps – the big­gest in a decade – last Aug. 9 and 50 bps on Sept. 27.

“With the (BSP) wor­ried about in­fla­tion ex­pec­ta­tions be­com­ing in­creas­ingly unan­chored, an­other 100 bps of hikes are likely be­fore the year is through,” Cap­i­tal Eco­nom­ics said.

In­fla­tion av­er­aged five per­cent in the first nine months, ex­ceed­ing the BSP’s two to four per­cent target. The con­sumer price in­dex leapt to a neardecade high of 6.7 per­cent in Septem­ber from 6.4 per­cent in Au­gust.

Based on its lat­est as­sess­ment, the BSP now ex­pects in­fla­tion to av­er­age 5.2 in­stead of 4.9 per­cent for 2018 and 4.3 in­stead of 3.7 per­cent in 2019.

Cap­i­tal Eco­nom­ics sees in­fla­tion av­er­ag­ing 5.3 per­cent this year be­fore eas­ing to 4.5 per­cent next year and fur­ther to four per­cent in 2020.

“Higher oil prices, a weaker peso and dis­rup­tion to food sup­plies from Typhoon Mangkhut (Om­pong) mean in­fla­tion is likely to re­main above the cen­tral bank’s target un­til late 2019. We ex­pect in­fla­tion to re­main a drag on con­sumer spend­ing for some time to come,” the think tank added.

It said high in­fla­tion and a slow­down in pri­vate in­vest­ment would weigh on the econ­omy over the com­ing quar­ters, with the gross do­mes­tic prod­uct (GDP) growth eas­ing to 6.3 per­cent this year and to six per­cent in 2019 and 2020.

The GDP ex­pan­sion av­er­aged 6.3 per­cent in the first half af­ter eas­ing to a three-year low of six per­cent in the sec­ond quar­ter from 6.6 per­cent in the first.

Eco­nomic man­agers pen­ciled a GDP growth of seven to eight per­cent this year from 6.7 per­cent last year.

“An­other drag on growth will come from the ex­port sec­tor. Mean­while, im­port growth is set to con­tinue at a rapid pace, driven by the booming de­mand for cap­i­tal goods and raw ma­te­ri­als to sup­ply the govern­ment’s in­fras­truc­ture drive,” Cap­i­tal Eco­nom­ics said.

The think tank said the peso is set to de­pre­ci­ate fur­ther to 55 to $1 this year and to end next year at a fresh all-time low of 58 to $1.

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