BSP tipped to raise rates to 5.25 per cent as inflation persists
Nomura expects a 25-basis-point increase on October 22, with further tightening possible if price pressures intensify.
The Bangko Sentral ng Pilipinas (BSP) is expected to lift its benchmark interest rate from five per cent to 5.25 per cent on October 22, according to Nomura, which said inflation remains the central bank’s priority despite weak domestic demand.
Following talks with senior monetary officials in Southeast Asia, the Japanese investment bank placed the BSP among the region’s authorities most inclined towards tighter policy. Its forecast increase of 25 basis points would be the fourth consecutive rise this year, taking cumulative tightening since April to 100 basis points.
September headline inflation reached 7.2 per cent, while the core measure, excluding volatile food and energy prices, rose to 4.7 per cent. Nomura said inflation remained above the BSP’s two to four per cent target. Energy, fertiliser and food costs drove the increase, with a possible strong El Niño posing further risks.
The bank said rising core inflation could indicate that initial price shocks were spreading more widely across goods and services. It flagged possible rate increases after October if El Niño adds to inflation and a recovery in government spending boosts demand.
Nomura said the BSP likely sees economic output as below potential, largely because government spending contracted sharply after the flood control corruption scandal. It added that the central bank appeared reasonably confident spending would recover from the fourth quarter. On the peso, Nomura said the BSP favours an exchange rate determined by markets, with intervention aimed mainly at limiting excessive volatility rather than stopping depreciation.
