The Bangko Sentral ng Pilipinas (BSP) is expected to continue raising its key policy rates in the final two months of the year in an attempt to tackle the faster than expected rate of increase in consumer prices.
In an Economic View released Monday, Sept. 26, Moody’s Analytics said the central bank’s Monetary Board will continue to be “pressured” to align its policy rates in tandem with the US Federal Reserve.
“Above-target inflation keeps the door open for BSP to continue with rate hikes. The central bank will also be pressured to move in tandem with the Fed to support the peso,” Moody’s Analytics said.
For this reason, it pointed out that “we expect BSP to deliver rate hikes at its November and December meetings.”
Last Thursday, the BSP raised anew its key interest rates by another 50-basis points.
The central bank so far jacked up rates by 225-basis points, bringing the overnight reverse repurchase rate to 4.25 percent, the highest since June 2019 that was pegged at 4.5 percent.
Currency weakness was a key issue for BSP. The peso slipped more than 10 percent since the start of the year against the US dollar, making it one of the worst performing emerging market currencies.
“A weaker peso has put greater pressure on imported inflation and seen the trade deficit widen to record levels in recent months,” Moody’s Analytics said.
The BSP’s action also followed the US Fed hiking its key policy rate by 75 basis points last week.
Moody’s Analytics said price pressures are expected to broaden after the government approved hikes in the minimum wage and transport fares.
“Also, the rise in core inflation over the last few months indicates that demand-side pressure is building. Added to that, extreme weather is a risk factor that may impact food prices,” it said.
The BSP upwardly revised its 2022 and 2023 inflation forecasts to 5.6 percent and 4.1 percent, respectively.
Earlier, BSP Governor Felipe M. Medalla said interest rate environment that still has some room for adjustment as the central bank pledged to do all that is needed to bring down the elevated inflation.