SECURITY Bank expects the Monetary Board to hike interest rates following the accelerated 6.1 percent September inflation, affirming the predictions made by other economists.
The bank is also revising the inflation outlook for the year to be around 6.1 percent, up from the previous estimate of 5.6 percent.
Bank’s chief economist Robert Dan Roces said in a statement that the sharp rise in food and rice prices sets the risks for the Bangko Sentral ng Pilipinas (BSP) to “potentially hike interest rates, possibly before the next scheduled meeting on Nov. 16, 2023.”
“A rate hike could aim to dampen inflation but might also slow down economic activity, but we do not think an off-cycle hike will take place,” Roces said.
September inflation rose to 6.1 percent from 5.3 percent in August, settling at the upper end of the BSP’s forecast range of 5.3-6.1 percent for the month. Year-to-date inflation stood at 6.6 percent.
In Sunstar Cebu’s earlier report following the release of September inflation, BPI’s lead economist Emilio Neri said he expects BSP’s Monetary Board to hike rates by November.
Neri said a hike is imminent as inflation will likely stay above the four percent target of the BSP until the end of the year given the latest data. He noted that rice will largely determine where inflation will settle in the next six months.
Roces said the critical decision points in the next policy meeting will be the direction of the USD/PHP; the US Fed’s decision on Nov. 2; the release of the October inflation report on Nov. 7; third-quarter gross domestic product on Nov. 9; the consideration that core inflation is going down; and the fact that rice supply as the major inflation driver may soon see increased stocks.
The BSP said it stands ready “to resume monetary policy tightening to prevent price pressures from broadening and to arrest the emergence of additional knock-on effects in view of persistent upside risks to the inflation outlook.”
According to Roces, the anticipated monetary tightening is likely to push bond yields higher near-term, and the peso could experience fluctuations, strengthening with interest rate hikes but potentially weakening if fiscal measures like tariff reductions are implemented.
The government is contemplating extending lower Most Favored Nation tariff rates on rice until December 2024.
“Additional tariff reductions may be deployed if global rice prices keep soaring due to factors like El Nino or rice export bans. These fiscal measures aim to increase supply and stabilize prices but could have implications for local producers,” Roces said.
Higher inflation was noted in rice (17.9 percent from 8.7 percent), meat (1.3 percent from -0.1 percent), fruits (11.6 percent from 9.6 percent), and corn (1.6 percent from 0.9 percent).