The central bank’s Monetary Board is expected to raise the key benchmark rate by 50 basis points (bps) on Thursday, Aug. 18, to 3.75 percent from 3.25 percent, according to Moody’s Analytics.
In its latest Asia-Pacific Economic Preview, Moody’s Analytics said the Bangko Sentral ng Pilipinas (BSP) will follow through on its July 14 surprise policy rate increase on Thursday.
“We look for Bangko Sentral ng Pilipinas to lift the policy rate by 50 basis points to 3.75% (percent), building on its off-cycle 75-basis point increment mid-July,” said the research unit of credit rating agency, Moody’s Investors Service.
“In the Philippines, BSP is also facing significant inflation pressures. Headline inflation reached 6.4% y/y (year-on-year) in July, the highest since October 2018. With commodity prices and supply-chain stress easing, inflation is likely near its peak. GDP (gross domestic product) growth for the June quarter came in below expectations at 7.4% y/y and contracted from the previous quarter,” noted Moody’s Analytics.
The BSP’s Monetary Board will meet on Thursday, Aug. 18, for its latest policy stance decision.
BSP Governor Felipe M. Medalla has already signalled to the market that after the inflation rate continued its rise to 6.4 percent in July from 6.1 percent in June, the probability that they raise the key rate by 50 bps has increased.
The BSP has so far increased the policy rate by 125 bps. Its initial lift off were two 25 bps rate hikes last May 19 and June 23, followed by an off-cycle 75 bps last July 14.
After this week’s Monetary Board policy meeting, the next one is on Sept. 22.
The BSP is hoping that following the rate increases, the peso-US dollar rate volatility will stabilize below P56 to the US dollar. They also expect the rate hikes to re-anchor inflation expectations.
The BSP has said that monetary policy rate increases will help moderate inflation expectations.
Other than the July inflation rate, the BSP will take into account the 7.4 percent GDP growth reported last Aug. 9. This was lower than the 8.2 percent GDP first quarter results.
As of June 23, the BSP’s average inflation forecast for 2022 is five percent, 4.2 percent for 2023 and 3.3 percent in 2024.