Philippine central bank to raise rates by 75 bps- Reuters poll

10:13 pm Monday, November 14th, 2022

By Shaloo Shrivastava

BENGALURU (Reuters) – The Philippine central bank will opt for a jumbo 75 basis point interest rate hike on Thursday to combat soaring inflation and limit weakening in the peso from the U.S. Federal Reserve’s own rate moves, a Reuters poll showed.

With inflation at 7.7% in October, well above the central bank’s target range of 2%-4%, and the Fed was not expected to stop hiking anytime soon, economists predicted the overnight borrowing rate will go even higher than previously thought.

Bangko Sentral ng Pilipinas (BSP) signalled earlier this month it planned to hike by that amount at this month’s meeting to match the Fed, leading to unanimity among economists in a Nov. 8-14 Reuters poll predicting it would.

With the Philippines peso down more than 11% this year and inflation at a 14-year high in October, all 19 economists polled said the BSP will hike its overnight borrowing rate to 5.00% on Nov. 17 from 4.25% currently.

If realised, that would take the policy rate to the highest since March 2009.

“An aggressive rate hike will maintain a 100bp rate differential with the Fed rate, which could help to stabilise the PHP against the USD amid a current account deficit that is currently in deep negative territory,” noted Aris Dacanay, economist at HSBC.

“A 75bp hike could also rein in demand and cool core inflation after surging 5.9% y-o-y in October.”

The BSP has already raised its key rate by a total of 225 basis points since May. Yet despite a succession of interest rate rises, the peso is one of the worst-performing emerging Asian currencies.

Three-quarters of respondents, 12 of 16, forecast a 50 basis point rise in December to 5.50%. Two said 5.25%, one said 5.75% while another expected rates to be on hold then.

For Q1, economists were evenly divided. Six of 16 expected a 50 basis point hike, five expected a 25 basis point move while five others did not expect any move after December.

The median forecast shows a higher terminal rate of 5.75% by end-Q1, compared with expectations of 5.00% by end-December in a September poll. Four big banks, Goldman Sachs, Nomura, DBS and UOB, estimated a terminal rate as high as 6.00% while HSBC predicted 6.25%.

(Reporting by Shaloo Shrivastava; polling by Maneesh Kumar and Anant Chandak; Editing by Ross Finley and Lisa Shumaker)