Lower February inflation may cap BSP’s March rate hike at 25 bps

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is again tipped to raise its policy rate on March 23 by 0.25 percentage point (ppt) to 6.25 percent as the lower-than-expected inflation in February may have shut the door on the earlier feared larger hike.

Last week, Monetary Board chair and BSP Governor Felipe Medalla broached the possibility of a 0.5-ppt hike to 6.5 percent if inflation in February read out higher than 9 percent.

The monthly average turned out to be 8.6 percent, lower than the 8.7 percent recorded in January as well as the common forecast of 8.9 percent for February.

“This effectively should close the door on another 50 basis point (bps) rate increase by the BSP,” said Miguel Chanco, economist on emerging Asian markets at Pantheon Macroeconomics.

“Inflation should now be on a one-way street down, though we’re more than happy to admit that the risks remain acute, in view of the seemingly endless string of supply-side food shocks over the past six months or so,” Chanco said.

He added that, assuming no further surprises, the surge in food and beverage inflation should soon turn more significantly, as it aligns with the benign global trend.

Nicholas Mapa, senior economist at ING Bank, said the February print solidified their expectation that the BSP could opt for a 0.25-ppt hike this month, which he said should be the peak for this tightening cycle.

“We expect inflation to remain sticky for the rest of the year with headline and core inflation likely only returning to target by December,” Mapa said, referring to a slow change in the numbers.

Core inflation, which excludes prices of goods and services that are considered volatile like food and energy, ratcheted up to a 23-year high of 7.8 percent in February from 7.4 percent in January. INQ

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Philippines’ inflation slowed to 8.6% in Feb

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