BSP seen hiking rates by 50 bps in 2018

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The Bangko Sentral ng Pilipinas (BSP) is expected to start raising interest rates by the second half of next year to address domestic macroeconomic issues.

Maybank Group Chief Economist Suhaimi Ilias sees a total 50-basis point (bps) hike through 2018, starting with a 25-bps adjustment during the third quarter.

“For the Philippines … there is need to manage … domestic macroeconomic issues, especially that the pressure of the peso has skewed to the situation that the current account has shifted from surplus to deficit as well effects of inflation, which is actually moving on an upward trend,” Ilias said in during the Maybank Philippines Economic Briefing on Tuesday in Makati City.

The Bangko Sentral — after lowering its reverse repurchase rate to 3 percent from 4 percent on May 16 last year in the runup to adopting an interest rate corridor system on June 3, 2016 — kept the policy rate unchanged at its November 9, 2017 meeting.


Overnight deposit and lending rates have also been maintained at 2.5 percent and 3.5 percent, respectively, and the reserve requirement ratio remains at 20 percent.

The Philippine peso, meanwhile, is currently trading above P50:$1.

The current account, which measures the net transfer of real resources between the domestic economy and the rest of the world, posted a $15-million surplus in the second quarter of the year, a reversal from the $1.25-billion deficit recorded a year earlier.

Inflation hit three-year high of 3.5 percent in October, bringing the year-to-date rise to 3.2 percent, above the midpoint of the government’s 2 percent to 4 percent target.

Private economists expect inflation to settle at 3.1 percent this year, slightly lower than the BSP’s full-year estimate of 3.2 percent.

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