Philippines: BSP hiked rates by 75 bps

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest interest rate decision by the BSP.

Key Takeaways

“Bangko Sentral ng Pilipinas (BSP) decided to escalate its inflation fight with a second back-to-back 50bps rate hike today (22 Sep), taking the overnight reverse repurchase (RRP) rate to 4.25%. The decision matched market expectations but came in more aggressive than we had anticipated. We attribute it to the impact of a more aggressive shift in US Fed’s hawkishness this morning (22 Sep), steeper depreciation in Peso (PHP) to an all-time low, and expected broadening of second-round effects on inflation from an approved fare hike for public transports that will take effect on 3 Oct.”

“The overall tone of the latest monetary policy statement (MPS) was largely unchanged compared to Aug’s statement, in which the central bank continues to highlight inflation as its primary concern, leaving the door open for more rate hikes and remains data dependent. BSP raised its full-year inflation projections again to 5.6% for this year (from Aug’s estimate of 5.4%, UOB est: 5.5%) and 4.1% for 2023 (from Aug’s estimate of 4.0%, UOB est: 4.5%), but trimmed its 2024 inflation forecast to 3.0% (from Aug’s estimate of 3.2%).”

“Given that the circumstances (i.e. Fed rate expectations, FX movement, and domestic policy changes) have changed dramatically from our assessment last month, we now think that BSP will need to respond more forcefully to these new developments. The cumulative 225bps interest rate increases so far this year, which fully unwound the 200bps cuts in 2020 with a tighter rate than prepandemic by 25bps, indicates that BSP is willing to tolerate a pullback in domestic growth as the necessary trade-off for bringing inflation back to target range. Thus, we raise our RRP rate projection to 5.00% by end-2022 (from 4.00% previously) with a 50bps hike in Nov and a 25bps hike in Dec. Thereafter, we stick to our view that BSP will press the rate pause button at 5.00% through 2023 until the global and domestic landscape warrants a change.”

Share: Feed news

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.