The Bangko Sentral ng Pilipinas will likely keep the policy rate steady this week despite the uptick in August 2023 inflation, Hongkong and Shanghai Banking Corp. said Monday.
HSBC Global Research said that with higher inflation last month amid significant price pressures from rice, the monetary policy decision this week would likely be a “tough one.”
“Nonetheless, we expect the Bangko Sentral ng Pilipinas to keep its policy rate untouched at 6.25 percent,” it said.
HSBC said concerns on growth would likely be front and center for local monetary authorities.
“The Philippine economy hasn’t felt the peak impact of the aggressive rate hikes done last year. But the hikes are already deep in the works: reining in investment demand while dragging down core CPI,” it said.
BSP Governor Eli Remolona earlier said he was not seeing any reason to hike the policy rate although inflation picked up to 5.3 percent in August from 4.7 percent in July. He said “it was just an uptick” that was caused by higher food prices.
“But these kinds of supply shocks dissipate usually… If there is no further supply shock beyond that uptick in August, then it won’t be necessary to hike the policy rate,” Remolona said.
The BSP raised the policy rate by a total of 425 basis points to 6.25 percent from May 2022 to March 2023, before taking what it called a “prudent pause” in the last three Monetary Board meetings.
The Monetary Board on Aug. 17, 2023 kept the overnight borrowing rate at 6.25 percent for the third time this year. The interest rates on the overnight deposit and lending facilities were also retained at 5.75 percent and 6.75 percent, respectively.
The board’s decision considered the lackluster 4.3-percent gross domestic product growth in the second quarter and 5.3 percent first-half expansion, below the 6 percent to 7 percent target range for the year.
The BSP said its latest baseline projections continued to show a return to inflation target in the fourth quarter of 2023 despite a generally higher path for inflation relative to the previous forecast from the monetary policy meeting in June, reflecting mainly the impact of higher international oil prices.