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ING Bank: New interest rate hike to benefit peso

THE peso is seen to benefit from the latest move of the Bangko Sentral ng Pilipinas to raise the policy interest rates by 25 basis points to 4.75 percent to further contain higher inflation rate, ING Bank Manila said Friday.

ING Bank senior economist Nicholas Mapa said in a report the rate hike was expected to anchor inflation expectations and stave off any potential second-round effects.

“... In the near term, the peso will benefit from the recent action while structural flows ahead of the holiday period may also provide an added boost,” Mapa said.

“Over the medium-term, however, projected current account deficits will likely exert a mild depreciation pressure until a clear reversal is seen on the external front,” Mapa said.

The peso posted its weakest level this year at 54.325 per dollar on Sept. 26, a 12-year low. It breached the 53 level on June 13 at 53.23 at the close on investors’ anticipation that the Fed would increase further the interest rates in the coming months. 

The peso closed at 52.80 on Thursday, the day the Monetary Board raised by 25 bps the policy rate, stronger than 53.09 per dollar a day ago.

Mapa also said with the fifth rate hike this year, the Bangko Sentral moved “proactively,” with yet another round of rate hikes despite the much lower inflation forecast for 2019. 

“... But with higher rates already showing signs of sapping economic growth momentum, the Philippines will need to continue to rely heavily on government spending to shore up slowing consumption and investment,” Mapa said.

The economy, according to some economists, grew “decent” 6.1 percent in the third quarter, slower than 7.2 percent a year ago and 6.2 percent a quarter ago, amid the decline in agricultural output and slowdown in household spending triggered by higher inflation.

Inflation in October remained at a nine-year high of 6.7 percent, the same rate posted a month ago but significantly faster than the 3.1 percent a year ago, driven mainly by increases in the prices of fuel and transport and the impact of recent typhoon Ompong in northern Luzon.

This brought inflation rate in the first 10 months of the year to 5.13 percent, well beyond the 2 to 4 percent target range set earlier by the government.

Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr., however, said the October inflation data supported the view that inflation pressures were finally moderating.

Earlier, Finance Secretary Carlos Dominguez III said the Duterte administration was doing its best to tame inflation with an array of measures in place to streamline imports of agricultural goods and speed up the delivery of food items to the retail market in order to check rising commodity prices.

Topics: Bangko Sentral ng Pilipinas , BSP , ING Bank Manila , interest rate , Philippine peso , inflation
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