BSP's November rate hike marks end of tightening cycle —Capital Economics

The Bangko Sentral ng Pilipinas (BSP) decision to hike rates anew on Thursday could be the last tightening action this year, London-based think tank Capital Economics said.

In its November 15 meeting, the BSP’s Monetary Board raised key policy rates by 25 basis points. The policy action brought the overnight borrowing rate to 4.75 percent, the overnight lending rate to 5.25 percent and the overnight deposit rate to 4.25 percent. 

This is the fifth consecutive rate hike this year for a total of 175 basis points.

“The central bank of the Philippines today raised its main policy rate for the fifth meeting in a row, but with inflation set to fall back over the coming months, we think this could mark the end of the tightening cycle,” Capital Economics said.

“If we are right, then we think today’s hike will be the last in the current cycle,” it said.

Union Bank of the Philippines chief economist Ruben Carlo Asuncion told GMA News Online this latest tweak in policy rates will probably be the last for the year.

“It was only 25 basis points, lesser than the last 50 basis points hike. This may mean acknowledging the easing price levels, but still recognizing the need to be pro-active on the monetary stance,” Asuncion said.

What will happen next depends primarily on what happens to inflation in the next few months, Capital Economics noted.

Inflation was unchanged at a nine-year high of 6.7 percent in October.

“The year-on-year rate should start to fall steadily over the coming months on the back of moderating food prices and declines in global oil prices,” Capital Economics said.

“The BSP will also be concerned about pressing the brakes too hard given the worsening outlook for economic growth,” it added.

Capital Economics lowered its full-year 2018 growth outlook for the Philippines to 6.2 percent from an earlier forecast of 6.5 percent on the back of slower third quarter economic print. 

The gross domestic product grew by 6.1 percent, slower than the upwardly revised 6.2 percent in the second quarter and 7-percent in the same period last year. Capital 

“Early remarks from the press conference suggest that the BSP is still worried about elevated inflation expectations,” Capital Economics noted,

The “milder” hike this month could mean the central is really winding down on tightening, Bank of the Philippine Islands lead economist Jun Neri said.

“Slower oil-price-collapse-driven November inflation print could lead to the first pause in December ... We expect the central bank’s first easing move by mid-2019 via the first of at least two reserve requirement ratio cuts next year,” he said. —LDF/VDS, GMA News