ING: PH rate hike ‘matter of timing’

MANILA  -An increase in the country’s policy rate to 6.5 percent may come as early as two weeks ahead of the Monetary Board’s (MB) next meeting on Nov. 16 considering the central bank’s constant “hikish” signals, according to ING Bank.

Nicholas Mapa, senior economist at The Netherlands-based group, said in a commentary that a 25-basis-point or 0.25 percentage point (ppt) increase to 6.5 percent seems to be set and is “only a matter of timing.”

Mapa observed that additional tightening of the Bangko Sentral ng Pilipinas (BSP) monetary policy would serve to tame the outlook on inflation—which revved up again in August and September—for next year.

He said so considering that 2023 is winding down and the Philippine peso is stable at the foreign exchange market while the financial market has not priced in a rate hike by the United States Federal Reserve.

READ: Another rate hike possible, says BSP chief

“We believe (BSP Governor and MB chair Eli) Remolona will pull the trigger on a rate hike in the near term, possibly after the October inflation report, a [still] potential Fed rate hike or at the November BSP policy meeting,” Mapa said.

Off-cycle move

The US Fed meets on Oct. 31 to Nov. 1 while the Philippine Statistics Authority is scheduled to come out with the October inflation readout by Nov. 7. Either case would be an off-cycle move ahead of the Nov. 16 MB meeting.

The last time that the BSP went for an off-cycle rate change was on July 14, 2022—from 2.5 percent to 3.25 percent—when overall inflation had been rising month after month during the previous five months.

READ: Further policy tightening could hurt Philippine consumers -Balisacan

Back then the BSP said the policy rate was raised considering that “a significant further tightening of monetary policy was warranted by signs of sustained and broadening price pressures amid the ongoing normalization of monetary policy setting” in other countries like the US.

“What appears to be clear, at least from Remolona’s constant rhetoric, is that he is all but decided to increase rates further,” Mapa said.

Also, the economist thinks that an additional tightening may actually work counter to improving supply chains and efficiency.

READ: Likely Nov rate hike won’t be last, says BSP

“[W]e believe the net result of additional tightening would be much slower growth, with only a modest impact on inflation but only after growth slides to multi-year slows,” Mapa said.

“Nevertheless, it appears that Governor Remolona is set on tightening further given his comments indicating that all inflation-targeting central banks [like the BSP] are ‘structurally hawkish,’” he added.

In light of these, ING Bank expects the Philippine economy to grow more slowly next year at 4.5 percent from its forecast of 4.7 percent this year.

At the same time, ING Bank expects headline inflation to average next year at 4 percent—the high end of the BSP’s target range—from the forecast 6.2 percent this year.