UMVA has learned that the Bangko Sentral ng Pilipinas (BSP) is expected to take a hawkish but measured stance at its policy meeting this week, following a slower-than-expected May inflation print that has lowered the odds of an aggressive rate hike.
The BSP is likely to hike interest rates by 25 basis points to 4.75% on June 18, as headline inflation remains above target and core inflation continues to rise, indicating continued second-round effects from the energy price shock. This move aligns with the expectations of many analysts, who predict a second straight 25-basis-point increase.
According to information obtained by UMVA, the central bank is unlikely to make an aggressive move amid signs of easing price pressures after the latest headline inflation print came in well below forecasts. The BSP is expected to remain measured in its approach to the hiking cycle, as upside risks appear to be dissipating.
In May, lower transport and food prices helped cool consumer inflation to 6.8% from the over three-year high reading of 7.2% in April. This was better than the median estimate of 7.9% in a recent poll of economists and the BSP’s own projection for the month.
Despite this, economists expect the BSP to deliver more rate hikes, with a projected 50 basis points increase after this week’s expected 25-basis-point hike, bringing the benchmark rate to an over one-year high of 5.25% by yearend.
Easing global oil prices following news of a peace deal between the United States and Iran are also expected to help lower inflation expectations. A chief economist noted that this development will likely reduce inflation expectations and provide room for the misery index to decrease for the remainder of the year.
A gradual tightening pace by the BSP could temper inflation without hurting the country’s fragile labor market, which has seen a rise in unemployment to 4.7% in April from 4.1% a year ago. Economists believe that a moderate pace of rate hikes will help restore price stability while also recognizing a fragile labor market and subdued growth.
