Moody’s Analytics sees the Bangko Sentral ng Pilipinas (BSP) delivering a more aggressive 50 basis points rate hike in August, bringing the overnight reverse repurchase rate to three percent, to curb rising inflationary expectations and temper the depreciation of the peso.
The research arm of the Moody’s Group said the central bank’s Monetary Board needs to aggressively tighten the country’s monetary policy stance after delivering back-to-back 25 basis points rate hike in May and June.
The central bank started its interest rate liftoff after it delivered a 25 basis points rate hike last May 19, the first in more than three years or since November 2018, followed by another 25 basis points last June 23 as it now expects inflation to breach the two to four percent target in 2022 and 2023.
“We believe that the central bank is more likely to go with a 50-basis point rate hike come August that another 25-basis points move,” Moody’s Analytics said.
It believes the moderate rate increase stand in contract to a hawkish US Federal Reserve that raised its key policy rates by 75 basis points last June 15, the biggest since 1994.
“Higher food prices, resulting from supply shortages, and high oil prices are leading import inflation. A prolonged buildup of supply-side pressure increases the risk of second-round effects,” Moody’s Analytics added.
The BSP now expects inflation to average five percent instead of 4.6 percent for this year and 4.2 percent instead of 3.9 percent for next year, both exceeding the central bank’s two to four percent target.
“BSP, which said the chance of a third rate hike in August is 90 percent upwardly revised its inflation forecast for 2022 and 2023. It does not expect inflation to return to its target range of two to four percent until 2024,” Moody’s Analytics said.