The Bangko Sentral ng Pilipinas is expected to hike interest rates this year on rising inflationary pressures, widening trade deficit and the expected hawkish policy stance of the US Federal Reserve, Business Monitor International, a unit of Fitch Group, said Thursday.
BMI cited the 3.3-percent inflation in December 2017 which picked up from 2.6 percent in December 2016, saying this trend would continue for several reasons.
“Firstly, energy prices have been on an upswing with our oil and gas team forecasting 2018 average Brent crude price to rise by 14 percent from $57 per barrel in 2017 to $65/bbl in 2018. Secondly, household consumption loans have been picking up, with the latest figure in October 2017 from the Bangko Sentral Ng Pilipinas coming in at 23.4 percent y-o-y, compared with 20 percent in September 2017,” BMI said.
It said as the government’s aggressive infrastructure-spending plans gained further momentum and slowdown in investment continues, this could lead to a wider fiscal deficit.
“Taken together, these factors inform our forecast for inflation to rise to 4 percent by the end of 2018, up from 3.3 percent in 2017. As inflationary pressures mount, we expect the BSP to hike its benchmark overnight repurchase rate by 50 bps to 3.5 percent by the end of 2018,” it said.