Another 25-basis-point interest rate hike by the Bangko Sentral ng Pilipinas this month will boost the value of the peso against the US dollar, an economist said Thursday.
The BSP last week decided to raise the overnight borrowing rate by 25 basis points to 6.5 percent in a surprise off-cycle move to rein in inflation.
BSP Governor Eli Remolona Jr. hinted that the bank’s Monetary Board may further adjust the benchmark rate if inflation would remain elevated.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said higher domestic interest rates would encourage investors to place their bets in the peso.
“Yes, definitely, as higher local interest rates increase, the [higher] interest rate income/returns on the peso, andnarrower interest rate differential withthe US dollar,” Ricafort said.
Ricafort said the seasonal increase in remittances during the holiday season is another factor that would be favorable to the peso against the greenback.
He predicted that the peso would end the year at a range of 55.50 to 56.50 per dollar. On Oct. 31, the peso closed at 56.73, up from 56.955 on Oct. 27.
Remolona said the Monetary Board might opt for another 25-basis-point increase this year, if needed, but it would depend on the latest economic data such as inflation and the gross domestic product print for the third quarter.
“If there is a hike, [it’s] more likely 25 [basis points] than 50, but [it] depends on the data,” Remolona said.
The Philippine Statistics Authority will release the October inflation report next week. Inflation was at 6.1 percent in September and 6.6 percent in the first nine months, above the 2023 target range of 2 percent to 4 percent.
Core inflation, which excludes volatile food and energy items, hit 5.9 percent in September and 7.2 percent in the nine-month period.
Remolona said he was hoping the coming data would be “nicer”, or monetary authorities may resort to another rate hike.
He said he was no longer expecting inflation to return to the target range of 2 percent to 4 percent this year.
Inflation peaked at 8.7 percent in January 2023 but eased in the succeeding six months. It picked up again to 5.3 percent in August and 6.1 percent in September on higher food and fuel prices.