Fare increase seen to force another BSP rate hike

MANILA, Philippines — Fare hikes for buses and jeepneys that will take effect in November may compel the Bangko Sentral ng Pilipinas (BSP) to raise policy rates by a maximum of 25 basis points (bps) before the end of the year to stave off inflationary pressures, according to First Metro Investment Corp. (FMIC).

In the October issue of its joint Market Call report with the University of Asia and the Pacific (UA&P), the investment banking arm of the Metrobank Group said inflation may have reached its peak in the third quarter of the year as food supply normalized in October. Monetary authorities are still on guard due to the forthcoming increase in public transportation costs.

“We think that BSP would raise policy rates by a maximum of 25 bps before end of 2018 despite falling rice, food and oil prices, since bus and jeepney fares are supposed to rise by November,” the report said.

The Land Transportation Franchising and Regulatory Board (LTFRB) approved this month with finality the P1 increase in jeepney fare granted in July and an additional P1  for the first four kilometers travelled, raising the minimum fare from P8 to P10.

The LTFRB also granted a provisional P1 fare hike in bus fares for the first five kilometers. Commuters would be charged another 15 centavos for every succeeding kilometer. This brings the minimum bus fare to P11 from P10 for buses plying Metro Manila and to P13 from P12 for provincial buses.

 “Monetary authorities stand poised for another policy rate hike, even though it should be mindful of tightening liquidity in the face of huge-fund-raising plans by banks in Q4,” the report said.

The Development Budget Coordination Committee (DBCC) adjusted upwards the inflation forecasts for this year to a range of 4.8 percent to 5.2 percent as well as next year’s assumptions to a range of two percent to four percent.

This is consistent with the government’s assessment that inflation would ease to the target level by next year.

FMIC and UA&P, meanwhile, expect economic growth in the third quarter of the year to exceed the six percent mark recorded in the second quarter because of the sustained strength of private and public and private spending combined with the modest rebound in exports.

 “The economy still looked healthy as most indicators released proved robust,” said the report.

 “Inflation continued to batter consumers as it rose faster to 6.7 percent year-on-year in September from 6.4 percent a month ago. Nonetheless, the BSP’s tightening moves, including another 50-bps policy rate rise late last month have been cooling money growth and probably inflation expectations as well,” it added.

Among these indicators, the report noted the 39 percent increase in capital goods imports in July; the 29 percent increase in national government disbursements amounting to P260 billion in August; the third straight month of growth in exports at 3.1 percent year-on-year in August; and the five percent increase in dollar remittances by OFWs that reversed the decline in the previous month.

“The strength of the economy lies in investment and government spending, while there may be slight weakness in consumer spending due to higher inflation. However, this may be compensated by more robust growth in exports in Q3,” the report added.