Philippines c.bank to start tightening in Q4, early hike possible

FILE PHOTO: A logo of Bangko Sentral ng Pilipinas (Central Bank of the Philippines) is seen at their main building in Manila, Philippines March 23, 2016. REUTERS/Romeo Ranoco

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  • The 17 economists in the survey see the key rate stable at 2.0%
  • BSP will announce its tariff decision on Thursday, March 24

BENGALURU, March 22 (Reuters) – The Philippines’ central bank will suspend policy at Thursday’s meeting to support a nascent recovery, despite the U.S. Federal Reserve’s recent rate hike and soaring commodity prices since the invasion of Ukraine by Russia, according to a Reuters poll.

Governor Benjamin Diokno said last week that monetary policy would remain accommodative and data dependent, so the central bank would not necessarily follow the Fed.

The Bangko Sentral ng Pilipinas (BSP) can also wait as inflation in the Philippines is within the central bank’s target range of 2% to 4%.

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“BSP, in our view, expects economic output to return to pre-COVID levels later this year, paving the way for the start of its upside cycle in the fourth quarter,” Nomura economists noted.

All 17 economists polled in a March 15-21 poll expected the Overnight Repo Facility (PHCBIR=ECI) to remain at a record high of 2.00% at the March meeting. March 24. But it was expected to rise 50 basis points in the final quarter of the year to 2.50%, matching a February poll forecast.

However, rising commodity prices due to the Russian-Ukrainian war are expected to drive up inflation in the Philippines, a net importer of crude oil, raising the potential for a faster rate hike. Indeed, a significant minority of economists, eight out of 17, forecast a rise in the third quarter.

“Rising commodity prices and its implications for growth and inflation have put the BSP in a difficult position,” said Debalika Sarkar, economist at ANZ.

“By its own assessment, annual inflation will rise above the upper end of the 2-4% target range this year if average oil prices stabilize north of $95 a barrel.

Expectations of a further rate hike to 2.75% have been postponed to Q1 2023 compared to Q2 2023 in the last survey.

The Philippine peso, which has fallen about 3% since the start of the year, fell on Friday after the central bank signaled that it was in no rush to raise interest rates. Some analysts say the weak currency could still trigger a rate hike.

“BSP will need to adjust its monetary policy to support the declining currency, which will help prevent the build-up of imported inflation,” said Nicholas Mapa, senior economist at ING. Mapa expects a 100 basis point hike by the end of the year.

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Reporting by Shaloo Shrivastava and Devayani Sathyan; Poll by Md. Manzer Hussain and Arsh Mogre; edited by Jonathan Oatis

Our standards: The Thomson Reuters Trust Principles.

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