MANILA -- The policy-making Monetary Board (MB) is very likely to increase Bangko Sentral’s key rates by 25 basis points during its rate setting meeting on May 10, according to strategists of DBS Bank Ltd..
In a research note, DBS attributed its projection to the increasing rates of domestically-issued securities as well as the rising inflation rate. It noted that rate of the 10-year bond rose to seven percent at the secondary market on Tuesday.
“More importantly, the three-month Philippine interbank reference rate has been moving higher with CPI (consumer price index) inflation since the start of the year,” it said.
The pace of price increases in the first quarter of 2018 averaged at 3.8 percent, within the government’s two to four percent target until 2019.
However, the March figure alone posted an uptick to 4.3 percent from month-ago’s 3.8 percent and year-ago’s 3.1 percent due to the sustained double-digit growth of the alcoholic beverages and tobacco index, 18.6 percent, and strong rise of the food and non-alcoholic beverages, 5.9 percent.
The report said “CPI inflation is only expected to top out around five to six percent in May-June from the tax reforms, not helped by a weaker exchange rate.”
It noted that the local currency has depreciated by about 4.3 percent since the start of 2018 but pointed out that this decline is “not far from the full-year depreciation of 5.4 percent and 4.7 percent seen in 2016 and 2015 respectively.”
“As for the next central bank meeting on May 10, we see the overnight borrowing rate higher by 25 bps to 3.25 percent,” DBS think tanks said.
The report added that “with the country’s current account and fiscal balances both in deficits amidst mildly hawkish Fed hikes, the government may be looking to issue more bonds to retail investors ahead.” (PNA)
