Deutsche Bank sees BSP hiking rates up to three times
By Derco Rosal
At A Glance
- Frankfurt-based Deutsche Bank believes the Bangko Sentral ng Pilipinas (BSP) could eventually hike the 4.25 percent key interest rate over the coming policy meetings, but the cycle could end after a maximum of three hikes as the Philippines still grows below potential.
The research arm of Frankfurt-based Deutsche Bank believes the Bangko Sentral ng Pilipinas (BSP) could eventually hike the 4.25-percent key interest rate over upcoming policy meetings, but the cycle could end after a maximum of three hikes as the Philippines still grows below potential.
“Prices could remain high as the Philippine economy reacts to the national energy emergency,” Deutsche Bank Research economist Junjie Huang said in a March 26 report obtained by Manila Bulletin, adding that the ongoing military aggression between United States (US)-backed Israel and Iran could further escalate before subsiding.
According to Deutsche Bank Research, the current surge in diesel prices, which reached a record ₱103 per liter this month, is expected to mirror the 2018 and 2021 shocks by triggering immediate domestic inflation followed quickly by second-round spillover effects.
Citing such risks to inflation, Deutsche Bank Research priced in that the monetary authorities would deliver a quarter-point hike over the next couple of meetings: “If not in April, then by June.” The next Monetary Board (MB) policy meeting will be on April 23.
Note that the BSP last week held key borrowing costs steady during a rare off-cycle policy meeting, on the back of well-anchored inflation expectations.
“We think the BSP will tighten its monetary policy sooner rather than later. A gradual tightening in policy settings from April would signal the BSP’s intention to appropriately anchor inflation expectations,” Deutsche Bank Research said.
“This hiking cycle could conclude with just two to three hikes at most, as the Philippines still faces a protracted negative output gap,” Deutsche Bank Research said, adding that despite the gasping economy, the BSP would still prioritize taming consumer prices over propping up the economy.
For Deutsche Bank Research, how the fiscal authorities navigate this supply-driven inflation would “no doubt have a large influence on how much the BSP may have to do in terms of its own monetary policy.”
Continued tightening is likely, according to Deutsche Bank Research, especially if price growth persistently breaches the four-percent ceiling. The BSP forecasts headline inflation to average 5.1 percent this year.
Deutsche Bank Research tweaked upwards its inflation forecast for 2026 to 3.9 percent from three percent previously, and for 2027 to 3.2 percent from 2.8 percent previously.
As monitored by Deutsche Bank Research, yields for the three-year government bonds have so far risen by 115 basis points (bps) month-to-date. The lender, however, points to the country’s below-potential growth as the sand in the wheels of policy hiking.
The German lender’s research arm also lowered its gross domestic product (GDP) growth projection for the Philippines to 4.9 percent from 5.1 previously. This was guided by an estimate that a sustained 10-percent increase in oil prices could shave 0.2 percentage point (ppt) from actual growth.