BRITISH financial giant Hongkong and Shanghai Banking Corp. expects the Bangko Sentral ng Pilipinas to raise the policy interest rates by 50 basis points in its next meeting this month to rein in inflation.
HSBC in a report cited the Philippine government’s earlier announcement of a wider deficit target of 3.2 percent of the gross domestic product next year, which is larger than 3 percent that was previously announced for the medium term.
“… The main takeaway is that further fiscal impulse should be expected into 2019, adding to what is already strong growth. Continued fiscal stimulus is likely to slightly delay the return of inflation to the mid-point of the BSP’s target, among other factors… ,” HSBC said.
“… Which is partly why we expect the BSP to take decisive, pre-emptive action in its upcoming meeting,” it said.
The inflation rate rose to a more than five-year high of 5.2 percent in June using the 2012 price index, bringing the first-half average to 4.3 percent, which was over the target range of 2 percent to 4 percent for the year.
Bangko Sentral predicted last week that inflation in July likely accelerated to as high as 5.8 percent from 5.2 percent a month ago, driven mainly by higher prices of electricity, water, fuel and food commodities during the month.
The Bangko Sentral Department of Economic Research saw the July 2018 inflation within the 5.1 percent to 5.8 percent range.
The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, on June 20 raised for the second time this year the policy interest rates by 25 basis points to 3.5 percent, wary of the possible second-round effects of inflation.
The interest rates on the overnight lending and deposit facilities were also increased accordingly.
The Monetary Board noted that inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures supported a follow-through monetary policy action.