Philippines lifts rates again to 3.5%

MANILA - The Central Bank of the Philippines, Bangko Sentral ng Pilipinas (BSP) today  raised its overnight reverse repurchase rate (RRR) by 25bps to 3.50%, despite soft inflation in May. 

“In our view, sustained peso weakness nudged the central bank to hike the policy rate,” ANZ Bank says in a research note. The BSP had marginally lowered its inflation forecast for 2018 to 4.5% from 4.6% earlier.

For 2019, the BSP now expects inflation to average 3.3%, slightly lower than its May projection of 3.4%. It also expects inflation to peak in Q3 2018.

The central bank also stated that it stands ready to take further policy action, with higher crude oil prices and a potential upward revision in minimum wages seen as the key upside risks.

“The important thing to watch out would be the magnitude of wage revisions in October, in our view,” ANZ says.

“We concur with the BSP on its assessment, and expect inflation to average 4.7% in 2018. For a considerable period, we have been concerned over rising inflation as well as robust credit and import growth.

“Economic data continues to portend over-heating pressures in the economy. (And) the trade deficit surged 59.0% y/y during January-April this year, implying further deterioration in the current account.

“The peso has depreciated by 6.6% year-to-date, which could add further to inflationary pressures. In our view, the central bank has kept the door open for further rate hikes.  www.live.anz.com (ATI).