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October 07, 2022

Citi expects BSP to hike interest rates on Thursday

Citi Philippines led by bankero Aftab Ahmed sees the Bangko Sentral ng Pilipinas (BSP) raising interest rates as early as this week on the back of the faster-than-anticipated economic expansion in the first quarter of the year as well as the quickening inflation

Nalin Chutchotitham, economist for the Philippines at Citi said the probability of an earlier rate hike on May 19 has increased.

“Stronger domestic demand recovery may lead to greater pass-through of costs from businesses to consumers, while foreign exchange depreciation coupled with prolonged high commodity prices could add to BSP’s concerns,” Chutchotitham said.

Citi expects another 25 basis points hike in September with the BSP projecting inflation to return to within the two to four percent target next year.

“Stronger recovery momentum will likely give BSP confidence to start hiking by 25 basis points on June 23, although it is likely to focus on anchoring inflation expectations,” the economist said.

The BSP still deems that second-round inflationary pressures are limited and that it could look through near-term supply-side inflationary pressures.

Citi noted that recent developments including the sharp rise in inflation as well as the stronger-than-expected GDP growth in the first quarter that could pave the way for an interest rate liftoff on May 19.

The central bank’s Monetary Board has kept interest rates at record lows after delivering a cumulative 200 basis points in rate cuts in 2020 to cushion the impact of the COVID-19 pandemic on the economy.

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