MANILA, Philippines – According to Emilio Neri Jr., chief economist of the Bank of the Philippine Islands (BPI), interest rates for this year are presumed to be increased by the Bangko Sentral ng Pilipinas (BSP) by 50 bps (basis points) because of inflationary pressures. BSP in turn is expected to implement two rate hikes.
Neri said that subject to the outcome of inflation for February, the first increase of interest rate might take effect as soon as March. BSP will have to implement an increase in rate for March if the rate hike for inflation continues notably.
The delivery of data for February inflation is expected in March.
The Philippines’ inflation rate in the last three years marked its highest at 4 percent in January because of the higher cost of food, tobacco products, and alcoholic beverages.
In spite of the unexpected inflation hike in January, the Monetary Board maintained settings of monetary policy at the first meeting for this year’s rate-setting that was held last February 8. However, the central bank changed its prediction regarding inflation for 2018 to 4.3 percent from 3.4 percent.
The next meeting for monetary policy is scheduled to be held on March 22.
Neri also expressed their hope that BSP will not announce an interest rate hike in the middle of the planned meeting, since it will seem to appear like an emergency increase in rate.
Having said that the first rate hike might occur in March, Neri expressed that the second rate hike might happen in June or by the 3rd quarter of 2018.
The first interest rate hike for this year is foreseen to increase by 25 bps from the current 3 percent, resulting in 3.25 percent.
Neri mentioned that it’s not probable the inflation rate will hit more than 4 percent by the next year. Instead, it must be lower in 2019.
The Bangko Sentral ng Pilipinas predicts inflation increase of up to 3.5 percent next year, higher than the forecast 3.2 percent.
Recently, Eugenia Victorino, Asia Pacific ANZ economist, said that inflation might increase up to 4.1 percent this 2018 from last year’s 3.2 percent.
Previously, the BSP set the target for the inflation rate to 2 to 4 percent from 2018 to 2020 from its recent evaluation.
In 2019, inflation might go lower to 3.4 percent, according to Victorino.
Although the new law for tax reform has a direct impact on some products, Victorino mentioned that the rate hike in main prices indicates that several effects of the TRAIN Act have seeped through by now.
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