UA&P, FMIC see two more rate hikes
Two more policy rate hikes — one possibly involving 50 basis points (bps) — could be ordered in the short-term to address rising inflation, an economist said on Monday.
The University of Asia and the Pacific’s (UA&P) Bernardo Villegas said monetary authorities could be forced to be more aggressive as the Philippines was “behind the curve” with regard to policy adjustments.
The US Federal Reserve already pulled the trigger to hike interest rates twice as well as central banks in Mexico, Canada, Pakistan, and the Czech Republic, among others, he noted. Locally, the Bangko Sentral ng Pilipinas’ policymaking Monetary Board increased key rates by 25 bps each in May and June.
“We need more aggressive policy because countries all over the world are already increasing interest rates and we’re only behind the curve and I think we can definitely rely on the central bank to do their main mission [of]inflation targeting,” Villegas said during the UA&P and First Metro Investment Corp.’s Midyear Economic and Capital Markets Briefing.
Villegas said he expected a 50-bps hike sometime in the third quarter and another adjustment early next year to help temper inflationary pressures.
Consumer prices are currently above the BSP’s 2.0-4.0 percent target, hitting 5.2 percent in May. Monetary authorities expect an above-4.0 percent result this year but insist that consumer price growth will return to target next year.
FMIC and UA&P expect inflation to taper to 4.2-4.5 percent in the second half due to lower crude prices and a likely decline in the cost of rice with the arrival of imports and as supply increases in September, the harvest month.
The economy, meanwhile, is expected to expand by 7.0-7.5 percent as macroeconomic fundamentals remain solid.
“We remain optimistic that the Philippine economy will continue to grow at a fast pace and we have every reason to believe this,” FMIC President Rabboni Francis Arjonillo said.
The Philippine peso is seen trading at an average of P53.90 versus the greenback.
“The peso depreciation is actually not bad for an economy like ours. In fact, its impact in both the short and medium terms is positive. A weak peso would discourage imports and produce more exports, thus, reducing the trade deficits over the medium term,” Arjonillo said.
FMIC and UA&P also trimmed their yearend outlook for the Philippine Stock Exchange index to 7,900-8,200 from 9,400 previously, with corporates expected to deliver 10 percent earnings growth.
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