BSP seen to keep hawkish stance

MANILA, Philippines — July’s slower inflation is unlikely to persuade the Bangko Sentral ng Pilipinas to pause its campaign of interest rate increases, as policymakers remain focused on steering price growth back to their target, analysts said.

In a commentary released on Thursday, economists at Nomura Global Markets Research said they still expect the central bank to raise its benchmark rate by another half percentage point, with quarter-point increases anticipated at the policy meetings in August and October.

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“We believe BSP remains concerned about rising core inflation and is highly vigilant of upside risks overall, likely due to a combination of still-high uncertainty in crude oil prices, some impact from higher-than- expected wage hikes and prospects of a strong El Niño,” they said.

“The latest Consumer Price Index reading is unlikely to change that stance from BSP, in our view, but justifies its preference for a measured approach to its hiking cycle,” they added.

Data released this week showed that consumer prices had risen 6.2 percent in July from a year earlier, marking the third straight month of softer price gains. State statisticians said the slower pace of price hikes was driven by easing transport inflation, which moderated to 11.9 percent from 12.8 percent in the prior month.

Figures showed slower increases in fuel prices despite renewed tensions in the Middle East last month, with gasoline inflation decelerating to 34.1 percent from 39.2 percent, while diesel inflation eased to 38.6 percent from 39 percent.

At the same time, core inflation, which excludes selected volatile food and energy items to give a clear reading of underlying price pressures, eased to 4.2 percent in July from 4.4 percent in June.

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READ: Inflation slows to 6.2% in July

The BSP said it is prepared to take further monetary action as needed to ensure that inflation returns close to the 3-percent target. The central bank has raised its benchmark interest rate by a cumulative 50 basis points since April, bringing the key policy rate to 4.75 percent, as officials sought to keep inflation expectations anchored despite slowing economic growth.

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In a separate commentary, economists at DBS Bank said the Philippines’ inflation remains the highest in the region despite the slower print in July.

“The BSP retained its hawkish rhetoric, increasing the likelihood of a follow-up rate hike on [Aug. 27] to rein in inflationary expectations,” they said. INQ