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March 01, 2024

BPI now expects BSP to hike rates by 100 bps this year

Bank of the Philippine Islands (BPI) led by bankero TG Limcaoco is now expecting the Bangko Sentral ng Pilipinas (BSP) to hike rates by 100 basis points as inflationary pressures continue to build up

The Ayala-led bank believes inflation has probably not reached the peak yet despite the recent surge in consumer prices.

BPI said oil prices may go up again in the coming months especially if the European Union decides to implement an oil embargo against Russia. Countries will be competing for other sources of oil in this scenario and prices will most likely soar.

Furthermore, the peso is expected to weaken further in the coming months considering the surge in import demand.

“Considering these risks, we now expect at least 100 basis points hikes from the BSP this year from 75 basis points previously. Despite this, we believe the economy has enough cushion in case the BSP decides to hike its policy rate further,” BPI said.

The Philippines booked a faster-than-anticipated gross domestic product (GDP) growth of 8.3 percent in the first quarter of the year versus the 7.8 percent expansion in the fourth quarter and the 3.8 percent contraction in the first quarter last year.

“Even with a 100 basis points rate hike this year, the policy rate will still be below historical and pre-pandemic levels. Furthermore, the impact of rate hikes is usually gradual and the economy has the capacity to absorb slightly higher interest rates especially now that demand is almost back to pre-pandemic level,” the bank added.

The 170-year old lender warned a more significant risk to the country’s economic prospects is inflation and the depreciation of the peso, which will increase the cost of oil that the country imports from abroad on top of the increase brought by the conflict in Ukraine.

Last May 19, the BSP Monetary Board delivered its first rate hike in more than three years, raising policy rates by 25 basis points and bringing the benchmark rate to 2.25 percent from an all-time low of two percent.

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