Global bank HSBC believes that the Bangko Sentral ng Pilipinas (BSP) has no choice but to raise rates further, which will signal the central bank’s commitment to temper inflationary pressures.
In a recently released report, HSBC said that the BSP is likely to increase the main policy rate or the reverse repurchase (RRP) agreement, as well as the special deposit account (SDA) rate, by 25 basis points each, taking them to 3.75 percent and 2.25 percent, respectively.
In addition, the central bank may also raise the reserve requirement ratio for banks by another 1 percentage point to 21 percent, it said.
In a commentary, the Bank of the Philippine Islands (BPI), said that the 4.5-percent inflation rate last month may compel the central bank to hike rates on both the RRP and the SDA rates by 25 basis point each in today’s meeting. The bank said that adjusting both the SDA and the RRP would be a clear signal that the central bank is in a tightening cycle.
However, BPI said that the central bank may refrain from further hiking its reserve requirement after two consecutive adjustments.
Angping and Associates Securities Inc. Head of Research Rafael Supangco also foresees a tightening in the BSP’s main policy rates.
“I think we’ll see the central bank tighten up a bit, but not so much. Probably 25 basis points. Inflation has been quite high so far . . . ,” Supangco said in a text message to The Manila Times on Wednesday.
Justino Calaycay, analyst at the Accord Capital Equities Corp., differed with the consensus, however, and said that the BSP may hold its key policy rates steady, as the central bank will also consider the impact of higher interest rates on the slowing Philippine economy.
“Following the slower-than-expected growth in the first quarter, bets on keeping interest rates level gained,” Calaycay said, referring to the 5.7 percent slower than expected growth of the economy in the first quarter of the year.
He said that it will be a tough call for the BSP as the rising inflation has also led a growing number of analysts to forecast a rate hike earlier rather than later.
“However, considering we are still within the projected inflation band but below the growth pace, the bank regulators may find it more prudent to hold rates unchanged and wait for more data moving forward,” he said.