Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. said Friday an interest rate hike is possible in November 2023 and may not be the last one in its tightening cycle, given the persistent elevated inflation.
“We are not convinced it will be the last one in the cycle… We are still on a hawkish stance,” Remolona said in an interview on Bloomberg TV.
He said the Monetary Board opted for a fourth pause on Thursday, although the latest inflation figure came in higher than the previous one. Inflation in August climbed to 5.3 percent from 4.7 percent in July.
“It was not enough to hike this time, but upside risks were higher than usual… [There is a] good chance [to hike] next time… We will watch the numbers,” Remolona said.
He said the two biggest factors that could stoke inflation further are the transport fare hikes and the higher electricity rates.
“These two things could add to the inflation forecast for 2024,” he said.
BMI, a unit of Fitch Solutions, said in a report the BSP was expected to make one more rate hike as inflation remained elevated and the US Federal Reserve did not rule out the possibility of further tightening.
The BSP on Thursday kept the policy rate, now called target reverse repurchase (RRP), steady at 6.25 percent, and Remolona said a hike “remained on the table in November.”
BMI said the BSP’s latest monetary policy decision was in line with what it expected but it said that one more 25-basis-point hike was not out of the question. It said first, the US Federal Reserve did not completely rule out the possibility of further tightening.
“We think that the BSP will hike in lockstep with the Fed to maintain its external stability. The peso has depreciated by 2.1 percent in the year-to-date against the greenback and is currently trending towards its one year-low of P59.50/USD,” it said.
The second reason was the upside risks to the current inflation outlook. “While the sustained decline in oil prices since January this year should in theory feed through eventually and help bring consumer prices off the boil, the historical relationship between oil prices and inflation has weakened significantly since the pandemic began,” it said.
“While we are maintaining our forecast for the BSP to keep policy rates on hold through the year-end, the hawkish tone of the policy statement points to upside risks,” BMI said.
BMI said policymakers would be mindful of embarking on monetary loosening before the US Federal Reserve does so, as it could exacerbate weakness in the peso.
“We now think the Fed will only start cutting interest rates in H224 [second half of 2024], rather than Q224 [second quarter of 2024], and have similarly pushed back the timing of BSP cuts in 2024 to H224,” it said.