The local unit of Dutch financial giant ING Bank expects the Bangko Sentral ng Pilipinas to raise interest rates by May or June, citing the previous hawkish statements of Governor Nestor Espenilla Jr. that any tweak in the policy stance was “just a matter time.”
ING Bank senior economist Joey Cuyegkeng said in a report Thursday that justifications for the possible rate hike would be the rising inflation that could lead to second-round effects, such as demands for higher minimum wages and transport fares.
“A few tripartite regional wage boards have been conducting public hearings. Petitions for higher minimum fares are under consideration by the regulator,” he said.
“We believe that modest second-round effects are already incorporated in BSP’s inflation forecast. BSP forecasts a return to the target range over the policy horizon of by early 2019 with its 3 percent 2019 inflation outlook from 2018 forecast of 3.9 percent,” Cuyegkeng said.
Cuyegkeng said ING was more pessimistic than the consensus forecast with its 4.3-percent forecast (against consensus of 4 percent) this year and 3.7 percent next year (against consensus of 3.5 percent).
“Chances of our dovish policy rate view have dropped even as expectations in 2019 show a return to the inflation target range. The market expects a policy rate hike at the May or June meeting,” Cuyegkeng said.
Bangko Sentral Deputy Governor Diwa Guinigundo said last week there was not enough reason at the moment to tweak the current monetary policy stance as inflation rate would continue to be manageable and stabilize in the coming months.
“Right now, based on the March meeting of the Monetary Board, based on the 2012 base year, our [inflation] expectation is 3.8 percent for 2018 and around 3 percent by 2019,” Guinigundo said at the sidelines of the briefing on the first-quarter inflation report.
“So right now, we don’t have the numbers that will change our initial forecast as announced earlier by the Monetary Board. So the next meeting of the board next month, we should have more information that will help us refine our forecasts,” Guinigundo said.
He also downplayed the possibility that inflation would breach the 5-percent level or even inch closer to it.
“But if we see that the peak is 3.8 percent, and so far inflation averaged at 3.8 percent in the first quarter, you can just extrapolate what is going to happen for the rest of the year,” he said.