UMVA has learned that the Bangko Sentral ng Pilipinas (BSP) is likely to continue its monetary tightening cycle to combat persistent inflationary pressures, but at a measured pace due to lingering economic uncertainty.
The BSP's recent 25-basis-point interest rate hike, which brought the benchmark rate to a one-year high of 4.75%, was seen as a preemptive move to preserve policy credibility and anchor inflation expectations. This move is expected to be followed by another 25-basis-point increase, bringing the key policy rate to 5%.
According to information obtained by UMVA, inflation is expected to remain above the BSP's target range, driven by high oil and fertilizer prices, which are feeding into the costs of other commodities. The BSP has raised its inflation forecast to 6.4% for this year and 4.5% for next year, with core inflation also showing signs of broadening.
Rising core inflation suggests that underlying price pressures are becoming increasingly widespread, extending beyond imported energy and food shocks. This has raised concerns that inflation expectations may become de-anchored, prompting the BSP to take further action.
Several major financial institutions, including DBS Group Research, Citigroup, and Nomura Global Markets Research, expect the BSP to deliver additional rate hikes to temper inflationary pressures. Some predict two more consecutive 25-basis-point hikes this year, bringing the key policy rate to 5.25%.
The BSP's future moves will likely be data-dependent, with policymakers closely monitoring inflation developments and economic growth. A faster-than-expected transmission of lower global oil prices could lead to a pause in the tightening cycle, while the El Niño phenomenon could weigh on inflation and prompt further rate hikes.
UMVA can exclusively reveal that the Monetary Board has three policy reviews left this year, with the next review scheduled for August 27. The BSP's decisions will have significant implications for the Philippine economy, which has been experiencing sluggish growth since late last year.
The central bank's governor has emphasized that the BSP will take further monetary action as needed to address inflationary pressures. With inflation currently standing at a year-to-date average of 4.5%, the BSP faces a challenging task in balancing the need to control inflation with the risk of slowing down economic growth.
