The Bangko Sentral ng Pilipinas is expected to continue raising the key interest rate by additional 50 basis points to 6.5 percent in the first half in its bid to bring back inflation to the target range, Hongkong and Shanghai Banking Corp. said in a report Friday.
The policy-setting Monetary Board of the BSP on Thursday raised the policy rate by 50 basis points to 6 percent, or 25 basis points higher than the US Federal Reserve’s adjustment this month.
“We expect the BSP to do what it said it will and continue its tightening cycle. We anticipate the BSP to hike by 25 bp in March and another 25 bp in May, bringing the policy rate to 6.50 percent before pausing,” HSBC said.
“We then expect the BSP to hold this tight monetary stance throughout the rest of 2023,” it said.
The 6-percent policy interest rate was the highest since August 2008 at the height of the global financial crisis. Both the overnight lending and deposit rates were also increased to 6.50 percent and 5.50 percent, respectively.
“With inflation [at] a 14-year high and growth [at] a 46-year high, the BSP’s fight is not yet over,” the HSBC said.
HSBC said its forecast of more modest 25 bps hikes in March and May was under the expectation that inflation would peak in the first quarter of 2023. It said supply-side price pressures might ease to some extent in February as non-monetary policies finally kick in.
HSBC did not rule out any supply-side shocks such as typhoons in the coming months.
BSP Governor Felipe Medalla said Thursday that in deciding to raise the policy interest rate anew, the Monetary Board noted that the latest baseline inflation forecast path had shifted higher relative to the previous assessment. Average inflation is projected to breach the upper end of the 2 percent to 4 percent target range at 6.1 percent in 2023, before returning to within target at 3.1 percent in 2024.
He said the forecasts were adjusted upwards following the higher-than-expected inflation outturn in January of 8.7 percent and the continued stronger rebound in domestic demand and gross domestic product growth in fourth quarter.
Both headline and core inflation measures continued to increase, indicating a further broadening of price pressures, particularly in services, he said.
Meanwhile, inflation expectations also rose further, underscoring the need to preempt the emergence of further second-round effects.
The Monetary Board reiterated the need for timely and more aggressive whole-of-government actions to mitigate the impact of persistent supply-side pressures on food prices, including trade‑ positive measures and significant progress to boost productivity.