MANILA -- Several economists are projecting another hike in the Bangko Sentral ng Pilipinas’ (BSP) key rates this September after inflation surged to nine-year high in August 2018 to 6.4 percent.
In a research note, ING Bank Manila senior economist Joey Cuyegkeng said an “aggressive monetary policy action” is again needed even as the central bank has raised key rates by a total of 100 basis points to date.
This, after the inflation rate last month surpassed all projections, including central bank’s 5.5-6.2 percent band.
Inflation in August was driven by the faster rate of price increases of food items due to supply-side issues, the alcoholic beverages and tobacco index due to higher sin taxes, and the transport services because of higher prices of oil.
Cuyegkeng forecasts sustained elevated inflation rate, “with next month’s inflation rate likely to remain above 6 percent and full-year average inflation at 5.1 percent.”
These figures are higher than the 2 to 4 inflation percent target set by the government until 2020.
The economist said that although price pressures are expected to decelerate as government implements various measures to address supply-side issues “the impact of second-round effects would still have to be reflected in production costs and retail prices.”
He, thus, stressed that the BSP “needs to contain run-away inflation expectations and demand pull pressures.”
“The chances of another aggressive monetary policy action have increased as inflation has surged. Another 50 basis point policy rate hike at the 27 September meeting is a real possibility,” he added.
Meantime, Landbank market economist Guian Angelo S. Dumalagan said they are revising their forecast from steady BSP rates until the end of the year to a 50 basis points increase when members of the BSP’s policy-making Monetary Board (MB) meet late this month.
In a market report, he explained that their earlier expectation for an unchanged policy rates until end-year was due to expectations that inflation will peak in the third quarter and start to decelerate thereon.
As a result of expected deceleration of inflation, the peso, which has been on a depreciation mode for months now is seen to take a breather and stabilize.
However, Dumalagan said they need to revise their projection to take into account the inflation report released Wednesday, among others.
He, on the other hand, noted that a downside risk to their inflation forecast is the “passage and rapid implementation of the rice-import bill,” which is expected to help ease the hikes in rice inflation.
ANZ Research, in a study, revised upwards its 25 basis points hike projection to 50 basis points after noting the August 2018 inflation outturn.
It said the six percent level inflation rate, last seen in 2009, “will require more policy response given cost-push pressures in the economy.”
It expects domestic demand to remain strong, the impact of tax reforms to still linger, the peso to remain weak, and global crude oil prices remain high -- all of which are seen to bring inflation at elevated levels.
BSP Governor Nestor A. Espenilla on Wednesday said that since inflation remains driven by supply-side factors, there is a need for “more decisive non-monetary measures.”
He, however, said that monetary officials will continue to "look closely at the latest data to re-asses the medium-term inflation path” and “will weigh the need for further monetary policy action.”
“It is most critical at this point to restore inflation back to the target range soonest and securely anchor inflationary expectations,” he added. (PNA)
