MANILA – Though inflation is widely believed to have peaked in August, analysts still anticipate that the Monetary Board (MB) will go through with another hike in key rates on Thursday, September 27.
Economists of First Metro Investments Corporation (FMIC) and the UA&P Capital Markets Research consider the nine-year high 6.4 percent inflation rate last August to be the highest level for this year. “We expect lower food prices starting September (with new harvests and larger importations coming to the market) and slightly lower crude oil prices,” the monthly publication “The Market Call” states in its September issue.
In the wake of this forecast, the publication explained that a 50 basis points increase in the Bangko Sentral Pilipinas' (BSP) key rates is possible when the policy-making MB holds its sixth rate setting meet for the year.
It noted that pressures on the peso persists, a situation currently happening in some emerging market economies.
To date, the BSP’s key policy rates have been hiked by a total of 100 basis points as inflation continue to rise. The 6.4 percent inflation last August is a big jump from the 5.7 percent in the previous month.
In the first eight months this year, average inflation stood at 4.8 percent, higher than the 2 to 4 percent target band set by the central bank until 2020.
Monetary officials expect inflation to remain elevated this year but to back to within-target levels by 2019. With this, the BSP is widely expected to increase its rates further to address any second-round effects.
The peso is currently trading at 54-level to a US dollar, a level last seen in 2005.
Earlier, BSP Governor Nestor A. Espenilla Jr. said they are ready to “take strong immediate action using the full range of instruments in its toolkit” to address threats generated by higher-than-expected inflation.
“The follow-through actions will also address other threats to higher inflation, such as excessive exchange rate volatility not consistent with underlying macroeconomic fundamentals in order to ensure that inflation returns to its 2 (percent) to 4 percent target over the policy horizon,” he said.
Aside from the rate hike projection, FMIC and UA&P economists are also considering a cut in banks’ reserve requirements in the last quarter of this year “due to the huge fund-raising plans of major banks to comply with Basel 3 requirements and pre-funding of the National Government requirements in 2019.”
Last February, the BSP cut banks’ reserve requirement ratio (RRR) by one percentage point to 19 percent as part of its shift to market-based monetary policy implementation and the bid to introduce more financial market reforms.
The cut, it said, “reaffirms the BSP’s commitment to gradually lessen its reliance on reserve requirements for managing liquidity in the financial system.” (PNA)
