Central bank of the Philippines starts to tighten in Q4, earlier increase possible

© . FILE PHOTO: FILE PHOTO: A Bangko Sentral ng Pilipinas (Central Bank of the Philippines) logo is on display at their main building in Manila, Philippines, March 23, 2016. REUTERS/Romeo Ranoco By Shaloo Shrivastava and Devayani Sathyan BENGALURU () – The Central Philippine bank will put policy on hold at Thursday’s meeting to support a nascent recovery, despite a recent US Federal Reserve rate hike and soaring commodity prices since Russia’s invasion of Ukraine, a poll by . Governor Benjamin Diokno said last week that monetary policy would remain accommodative and data-dependent so that the central bank will not necessarily follow the Fed. The Bangko Sentral ng Pilipinas (BSP) also has room to wait, as inflation in the Philippines is within the central bank’s target range of 2% to 4%. “BSP believes, in our view, that economic output will return to pre-Covid levels later this year, setting the stage for the start of its walking cycle in the fourth quarter,” Nomura economists noted. In a March 15-21 poll, all 17 economists expected the overnight reverse repurchase facility to remain at a record low of 2.00% during the March 24 meeting. But it was forecast to rise 50 basis points to 2.50% in the last quarter of the year, in line with predictions in a February poll. However, rising commodity prices from the Russia-Ukraine war are likely to drive inflation in the Philippines, a net importer of , raising the potential for an earlier rate hike. Indeed, a significant minority of economists, eight out of 17, had planned an increase in the third quarter. “Rising commodity prices and their implications for the growth and inflation mix have put the BSP in a difficult position,” said Debalika Sarkar, economist at ANZ. “According to his own assessment, annual inflation this year will exceed the upper bound of the target of 2-4% if the average oil price falls north of $95/barrel.” Expectations for another rate hike to 2.75% were pushed forward to Q1 2023 from Q2 2023 in the latest poll. The Philippine peso, down about 3% since the start of the year, fell Friday after the central bank said it was in no rush to raise interest rates. Some analysts say currency weakness could still lead to a rate hike. “BSP will need to adjust monetary policy to support the flags, which in turn will help prevent the build-up of imported inflation,” said Nicholas Mapa, senior economist at ING. Mapa expects an increase of 100 basis points by the end of the year. Disclaimer: Fusion Media would like to remind you that the data on this website is not necessarily real-time or accurate. All CFDs (Stocks, Indices, Futures) and Forex prices are not provided by exchanges but rather by market makers, and therefore prices may not be accurate and may differ from the actual market price meaning prices are indicative and not suitable for trading purposes . Therefore, Fusion Media does not bear any responsibility for any trading losses that you may incur as a result of using this data. Fusion Media or anyone associated with Fusion Media accepts no liability for any loss or damage resulting from reliance on any information, including data, quotes, charts and buy/sell signals on this website. Be fully informed about the risks and costs associated with trading the financial markets, it is one of the riskiest forms of investment possible.

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