Analysts anticipate that the Bangko Sentral ng Pilipinas (BSP) will increase the benchmark borrowing rate by 25 basis points (bps) this Thursday, March 23, raising the policy rate to 6.25 percent.
Moody’s Analytics suggests that the BSP will need to continue to raise the overnight reverse repurchase (RRP) rate to address persistently high inflation.
It notes that both demand and supply-side factors are driving inflation, with the travel sector pushing up prices for accommodation, restaurant meals, and transport, and higher gas and diesel costs contributing to the supply-side.
ING Bank senior economist Nicholas Mapa said the March 23 rate hike may be the last one in a tightening cycle that started in May 2022, resulting in a 400 bps rate hike as of February 16 this year.
Mapa said that if inflation slows further, BSP Governor Felipe Medalla may even consider cutting the reserve requirement.
Meanwhile, First Metro Investment Corp. and its research partner, University of the Asia and the Pacific, believe that domestic inflation has likely peaked in January, with a downswing likely to ensue, although not as quickly as policy makers would like.
FMIC and UA&P expect inflation to fall below six percent in the third quarter.
On the exchange rate, FMIC and UA&P said that while the dollar-peso rate bucked the region’s currency depreciation mode in February, this trend is unlikely to last long due to the Fed’s renewed policy rate hiking and the country’s ballooning trade deficits, which hit a six-month high in January.
They said the peso-US dollar rate has unexplainably not caught up to the US dollar’s strength since April to October and again since January 2023.