HSBC economist, Aris Dacanay, said on Thursday that the Banko Sentral ng Pilipinas (BSP) is expected to increase the policy rate by at least 100 basis points (bps) to ensure inflation expectations are firmly anchored.
This follows after the Philippine Statistics Authority announced the January inflation rate at an elevated 8.7 percent, increasing from 8.1 percent in December and surpassing all projections including the BSP’s.
Dacanay said that the BSP will remain hawkish and then pause, “to promote stability.”
The central bank could hold the 6.5 percent RRP rate until the second half of 2024, Dacanay added.
Further, he expects that the Monetary Board will start reducing its policy rate by mid-2024.
“We raise our policy rate forecast and, at the same time, expect (BSP) to maintain its aggressive rate hiking position a little longer – delivering a 50bp (previously 25bp) hike at next week’s rate setting meeting. This would bring the overnight reverse repurchase rate to 6.00%. This means we expect the BSP to hike rates even more than the Fed did (25bp) last week,” he said in a commentary.
Meanwhile, HSBC also revised its average inflation forecast for 2023, from five percent to 5.7 percent.
Its inflation forecast for 2024 remains the same at 3.6 percent.
The current BSP policy rate or its overnight reverse repurchase (RRP) rate is 5.5 percent, its record high since December 2008.
Before the release of January’s inflation figures, BSP Governor Felipe M. Medalla expressed that they will likely increase its key rate during its policy meeting this month and on March 23.
However, the BSP chief was previously hinting at two rate hikes by 25 bps only.
Market observers now expect the BSP to act on a 50 bps rate hike on Feb.16, during its first policy meeting for the year.
