Philippines: BSP raised rates by 25 bps – UOB

Julia Goh, Senior Economist at UOB Group and Economist Loke Siew Ting comment on the June BSP event.

Key Takeaways

“Bangko Sentral ng Pilipinas (BSP), as expected, raised its overnight reverse repurchase (RRP) rate for the second straight meeting by 25bps to 2.50% today (23 Jun). Accordingly, both the overnight deposit and lending rates were also hiked to 2.00% and 3.00% respectively.”

“The latest move came after the national inflation hit above BSP’s 2.0%-4.0% medium-term target range in May (at 5.4%) and the government approved PHP1 provisional fare hike for jeepneys in mid-Jun that will likely intensify second-round effects on headline inflation. In view of inflation risks still tilting to the upside, BSP revised its inflation forecasts higher to 5.0% for 2022 (from 4.6% previously, UOB est: 5.0%) and 4.2% for 2023 (from 3.9% previously, UOB est: 4.0%), and introduced a 3.3% inflation outlook for 2024.”

“The accompanying statement revealed BSP’s top priority now is to bring inflation back to its 2.0%4.0% target range over the medium term, which is in line with our expectations. Hence, we continue to expect BSP to raise rates by a measured 25bps at every remaining meeting of this year in Aug, Sep, Nov, and Dec. This will bring the RRP rate to 3.50% by the end of 2022.”