MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to keep interest rates steady next week as inflation surprised on the downside at 4.9 percent in October, but foreign banks economists warned that risks of another rate hike remains.
Nalin Chutchotitham, economist for the Philippines at Citi, said the BSP’s Monetary Board is likely to stand pat during the rate-setting meeting scheduled on Nov. 16 after delivering a 25-basis-point off-cycle hike last Oct. 26.
“We see the BSP standing pat in November after bringing forward its rate hike to October in an off-cycle move. Some risks of another hike remains as the BSP aims to better anchor inflation expectations,” Chutchotitham said.
Chutchotitham added that the inflation outturn last month was better than the 5.6 percent market expectation and the BSP range of 5.1 to 5.9 percent.
Despite easing in October after quickening for two straight months to 5.3 percent in August and 6.1 percent in September from a year low of 4.7 percent in July, the growth in the consumer price index averaged 5.4 percent during the 10-month period and stayed above the central bank’s two to four percent target range.
Chutchotitham pointed out that the BSP remains somewhat hawkish as it wants to see a sustained downtrend in inflation and a better-anchored inflation expectation.
Monetary authorities, she said, also reiterated preparedness for follow-through monetary policy action, as necessary to prevent additional second-round effects.
“If the BSP were to use its latest 2024 inflation forecast (4.7 percent) as basis, the risks for further hikes would be significant, but we note potential of downward adjustments after October CPI print, and that market’s consensus estimate remains within target,” Chutchotitham added.
DBS Bank senior economist Radhika Rao said there is less urgency for the central bank to deliver another rate hike this month due to the slower rise in the prices of essential goods and services last month.
“With inflation rising by a slower pace than anticipated in October and undershooting the central bank’s indicative range in October, the BSP faces lower urgency to tighten policy rates this month,” Rao said.
The Singaporean bank expects the BSP to deliver another 25-basis point increase in key policy rates next month amid the strengthening of the peso due to the sharper correction in the US dollar.
“Nonetheless, we expect policymakers to stay nimble and be mindful of the impact of the higher-for-longer rate narrative out of the US on the domestic currency ,as well as its spillover effect on the price trajectory,” Rao added.
The BSP has emerged as the most aggressive central bank in the region, raising key policy rates by 450 basis points despite a hawkish pause in four straight-rate setting meetings in May, June, August, and September this year.
The urgent monetary action late last month to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations brought the benchmark interest rate to a fresh 16-year high of 6.5 percent.
HSBC economist for ASEAN Aris Dacanay said the central bank is likely to keep interest rates steady in the next rate-setting meeting of the Monetary Board scheduled on Nov. 16.
“Barring any new and unexpected shock, we expect the BSP to keep the monetary reins steady throughout 2023, but remain hawkish in tone,” Dacanay said.
The British banking giant sees inflation softening throughout 2023, but it could flare up again in first half of next year once tariff rates increase due to the expiration of Executive Order 10, which temporarily lowered the import duties on certain food products.
Nomura chief economist for ASEAN Euben Paracuelles believes a rate hike next week is now off the table.
“We no longer believe BSP is likely to deliver a follow-up 25bp hike at its next scheduled monetary board meeting on Nov. 16 (versus our previous assessment that this meeting is ‘live’ and that the risk was rising of a follow-up hike after BSP’s off-cycle hike),” Paracuelles said.
Paracuelles added that the central bank would remain vigilant of inflation risks and maintain a relatively hawkish tone in the coming months, continuing to pledge that it remains ready to resume hiking as needed.
Nomura sees inflation accelerating to 6.2 percent this year from 5.8 percent last year before easing to 3.8 percent next year.
“We now see BSP’s hiking cycle as over, but we delay further our forecast for BSP to start its cutting cycle to September from May 2024,” Paracuelles added.