Philippines: BSP raises rates by 50 basis points — UOB

The UOB Group economist Loke Siew Ting looks at the latest BSP monetary policy meeting.

Key points

“Bangko Sentral ng Pilipinas (BSP) raised its overnight reverse repo rate (RRP) by 50 basis points to 6.00%, marking the eighth consecutive meeting of increases since May last year. It was not a surprise move, as We had noted in our January CPI report that both the higher-than-expected January inflation results and Q4 2022 GDP results had reinforced the need for monetary tightening.Cumulatively, the BSP has adjusted its monetary policy by 400 basis points, the most aggressive since 2000”.

“The Monetary Board has deemed a strong monetary policy response necessary today (February 16) to (i) reduce the risk of failure to meet the inflation target in 2024, after consumer price inflation is expected to reach a average of 6.1% this year (implying an upward revision of the previous BSP forecast of 4.5% in December 2022). (ii) prevent inflation expectations from straying further from the target band of 2.0%- 4.0%; and (iii) contain demand pressures and second-round effects without unduly hindering the sustained momentum of economic growth.”

“We now expect the BSP to raise its real interest rate to 6.75% by the middle of this year (from a previous estimate of 6.00% for Q1 2023). Our new BSP outlook primarily reflects an upward revision to the last week’s (Feb 7) inflation forecast for the Philippines this year and a revised schedule for the US Fed rate to peak in the second quarter of 2023. After that, we think a consistent A gradual slowdown in inflation following the most aggressive interest rate hikes since last year and subdued growth prospects would allow the BSP to take a long pause on its rate hikes in the second quarter of 2023, keeping the RRP at the 6.75% until the end of the year.”