Next BSP hike may be 50 bps DB Research - BusinessWorld Online

BW FILE PHOTO By Katherine K.Chan, Reporter THE BANGKO SENTRAL ng Pilipinas (BSP) could raise its policy rate by 50 basis points (bps) in its next tightening move, as analysts at Deutsche Bank (DB) Research warned that inflation expectations are becoming unanchored.

Deutsche Bank Research said the central bank will likely be more aggressive in tightening monetary policy following BSP Governor Eli M.Remolona, Jr.’s latest hint of an off-cycle rate hike.

“We read its announcement for an off-cycle hike as a signal that inflation expectations are unanchoring, which thus calls for more decisive action to be taken, given that April’s 7.2% year-on-year inflation,” Deutsche Bank Research said in a report published on Monday.This came after Mr.

Remolona’s interview aired on Money Talks with Cathy Yang last Friday where he said the Monetary Board is considering delivering its second straight interest rate hike before their scheduled June 18 policy meeting. For Deutsche Bank Research, this could mean that the policy rate will be raised to 5% on or before the Board’s next policy review.“We expect BSP to now hike by 50 bps at its next meeting, whether off-cycle or its scheduled one on 18 June, as it takes a stronger stance in managing inflation expectations,” it said.

The central bank first hiked by 25 bps in April, after one-and-a-half years of easing, to raise the benchmark borrowing cost to 4.5%.BSP officials said the latest move came as a preemptive measure to control broader second-order price effects and keep inflation expectations anchored amid growing risks from the Middle East war.

Mr.Remolona has left the door open to further tightening, noting that the central bank seeks to uphold its price stability mandate and bring the headline print back to its 3% target.

It can be recalled that inflation settled past the BSP’s 2%-4% tolerance band for a second consecutive month after accelerating to 7.2% in A...