UMVA has learned that the Bangko Sentral ng Pilipinas (BSP) is poised to tighten monetary policy for a second straight meeting, as inflation remains elevated and the peso continues to struggle against the dollar.
A recent poll showed that 15 out of 20 analysts expect the BSP to raise interest rates by 25 basis points to 4.75% at its June 18 meeting, while four analysts predict a more aggressive 50-bp rate hike to 5%. Only one analyst sees the BSP holding steady, citing geopolitical uncertainties.
The BSP's likely move comes as inflation continues to overshoot its target, with May's headline inflation rate settling at 6.8%, slower than expected but still above the central bank's 2%-4% target range. Core inflation, which excludes volatile food and energy prices, also breached the target for the first time in over two years, quickening to 4.1% in May.
Analysts say the BSP is likely to maintain a hawkish stance, but may opt for a measured 25-bp hike this week, given the recent easing of headline inflation and sluggish domestic growth. However, some economists warn that a larger 50-bp rate hike may be necessary to anchor inflation expectations and prevent excessive currency volatility.
The peso's persistent weakness is also a concern, having breached P60/USD in March and recently trading near P61.30/USD. A weak peso could amplify imported inflation, making the exchange rate an increasingly important policy consideration for the BSP.
Despite the challenges, analysts expect the BSP to tread lightly in its policy decisions to avoid harming the country's fragile economy. The central bank aims to keep inflation within target while providing a conducive environment for sustainable growth.
The Monetary Board's policy path ahead will be closely watched, as it balances the need to control inflation with the risk of crimping domestic demand. With inflation expected to remain above 5% throughout the year, the BSP may need to consider further rate hikes to ensure that inflation expectations remain anchored.
UMVA can exclusively reveal that several factors will influence the BSP's decision, including the ongoing Middle East conflict, El Niño's potential impact on agricultural production, and the country's tepid economic growth. The central bank's foreign exchange market intervention will also play a crucial role in tempering sharp movements that could stoke inflation.
The BSP's next rate-setting meeting will take place on Aug. 27, followed by meetings on Oct. 22 and Dec. 17. As the central bank navigates the complex economic landscape, its policy decisions will have a significant impact on the country's economic growth and stability.
