Philippines normalizing at quicker pace, says DBS  

MANILA, Philippines — DBS Bank Ltd. of Singapore sees quicker normalization in the Philippines with the Bangko Sentral ng Pilipinas (BSP) delivering more rate hikes to curb rising inflationary pressures.

It said the central bank would remain vigilant to combat inflation after it delivered a 25 basis points rate hike to start its interest rate liftoff as inflation quickened to 5.4 percent in May, the highest since the 6.1 percent in November 2018, from 4.9 percent in April.

“Should rapid inflation momentum persist, the debate might shift towards quicker normalization than the gradual pace that has been communicated,” DBS said.

The investment bank sees inflation accelerating to 4.2 percent this year from 3.9 percent last year before easing to 3.3 percent next year.

Inflation averaged 4.1 percent between January and May this year, exceeding the BSP’s two to four percent target.

Based on its latest assessment, the central bank’s Monetary Board now expects inflation to  accelerate to 4.6 instead of 4.3 percent this year and 3.9 instead of 3.6 percent next year.

“Upside price pressures continued to be spurred by elevated commodity prices, especially oil, amid supply disruptions, coupled with continued economic recovery. We expect the BSP to remain vigilant and geared to combating inflation, having kickstarted its policy normalization cycle in its May meeting,” DBS said.

Outgoing BSP and incoming Finance Secretary Benjamin Diokno as well as Monetary Board member and incoming BSP Governor Felipe Medalla have signaled possible back-to-back rate hikes with another 25 basis points on June 23.

DBS sees the central bank gradually tightening its monetary policy stance, delivering 25 basis points in rate hikes per quarter until the first quarter of next year.

This would bring the benchmark policy rate to 3.25 percent by the first quarter of 2023 from an all-time low of two percent

As part of its COVID-19 response measures, the BSP slashed interest rates by 200 basis points in 2020 and at the same time lowered the reserve requirement ratio to free up as much as P2.3 trillion into the financial system to keep the economy afloat.

Other heavy lifting measures include the P540 billion provisional advance to the national government that was eventually reduced to P300 billion and fully settled late last month and  the purchase of government securities in the secondary market, among others.