MANILA -- An economist from the Manila office of Dutch banking group ING expects that the Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP) will implement two policy interest rate increases next year, particularly aimed at taming the peso's depreciation.
“We think another rate hike is possible later this year and two more in 2019 to moderate the peso’s depreciation back to around 2 percent in 2019,” ING Bank Manila Senior Economist Joey Cuyegkeng said.
On Wednesday, key interest rates were further hiked by 25 basis points as the policy-making MB sees inflation expectations remained elevated for this year.
BSP Nestor Espenilla Jr. said with this policy action by the MB, price pressures are expected to slow down this year, while pulling the inflation rate back to the 2 to 4 percent target for next year.
As inflation is expected to stabilize next year, Cuyegkeng noted that the possible interest rate hikes in 2019 will be targeting the local currency, which is now hitting the PHP53-to-a-dollar level.
“The peso is likely to remain under pressure for various reasons – deteriorating external payment balances, strong fiscal stimulus on top of favourable household and business spending and emerging market-negative external developments including a faster pace of US monetary tightening and trade fears,” the ING Bank’s economist noted.
He mentioned that the Philippine peso has been the worst performing currency in Asia, with year-to-date loss of 7 percent. The peso is also trading at a 12-year low.
“Although the pass-through impact of inflation has moderated over the past decade, a significant depreciation still contributes to inflation pressures and fuels concern of inflation remaining at elevated levels,” said Cuyegkeng.
“However, the central bank's hawkish tendency would be needed as emerging market sentiment remains weak and US monetary tightening continues with added pressure on moderating global liquidity in the next few years,” he added, noting that further policy tightening will help contain such concerns. (PNA)
