Philippines: BSP rate hikes likely to continue until 2019

  • The series of interest rate hikes by the Bangko Sentral ng Pilipinas (BSP) to curb rising inflationary pressures is expected to continue until 2019.
  • The research arm of Fitch Ratings said tightening of monetary conditions in the country would continue with three more rate hikes in 2019 amid the normalization path being undertaken by the US Federal Reserve, the weak peso, as well as the full-blown trade war between the US and China.
  • Fitch Solutions said rising inflationary pressures would prompt the BSP’s Monetary Board to raise benchmark rates by another 25 basis points before the end of 2018.
  • The BSP sees inflation rising further to a range of 5.1-5.8% in Jul 18 from 5.2% in Jun 18 due to higher utility rates, oil price and fare hike, imposition of higher excise tax on tobacco products, and more expensive food prices particularly rice. The consumer price index averaged 4.3% in 1H18.
  • While part of the inflation was caused by the tax reform program that pushed up the prices of basic goods and fuel through the imposition of excise taxes, Fitch Solutions said other key contributing factors also include the rising global oil price and higher aggregate demand.
  • Energy prices have been on an upswing, average Brent crude price is expected to jump 36.8% to USD75 per barrel in 2018 from USD54.8 per barrel in 2017.
  • It pointed out the upward price pressure is also due to high credit growth as a result of the BSP’s accommodative monetary policy stance, with household consumption loans picking up by 16.6% in end May 18.
  • It said inflation would accelerate to 4% in 2018 and to 4.3% in 2019 from 3.2% in 2017 as the government’s aggressive infrastructure spending plans gain further momentum and amid slower investments leading to a wider fiscal deficit.
  • The research unit of the debt watcher said the series of rate increases until 2019 would not be enough to dampen aggregate demand as it expects an uptake in consumer credit and robust consumer spending.
  • It added Philippine consumers would continue to outperform in 2018 and 2019 due to the ongoing boom in the services sector resulting in GDP growth of 6.5% in 2018.

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