MANILA, Phil - The Philippines’ central bank is expected to increase lending rates for the second straight time since 2005 after commodity prices climbed to their fastest in 14 years.
The move, which intends to control double-digit inflation, will also curb growth in the Philippines, southeast Asia’s fastest growing economy last year. Hiking borrowing costs is expected to discourage lending, putting a hold on private-sector led initiatives to expand their businesses.
Five economists said that the Bangko Sentral ng Pilipinas (BSP) is expected to lift interest rates by a quarter-point when it holds a policy meeting on Thursday.
In June, the Philippines' central monetary authority raised its key policy rates by 25 basis points.
Economists noted that with the BSP planning to tame consumer prices this year by 7 percent to 9 percent, the pressure to curb excess liquidity—the amount of surplus cash in the financial system—has become stronger. They agreed that the BSP will at least raise rates by 25 basis points to 5.5 percent.
Increased cash in the Philippines financial system—brought about by wage hikes and rising transport fares—tend to ramp up demand for consumer goods, leading to higher commodity prices.
The government has reported that June inflation was at 11.4 percent, the highest in 14 years.
“BSP is already behind the curve on inflation so it needs to tighten sharply to have much impact in containing expectations of future inflation," George Worthington, chief economist of Asia-Pacific IFR Markets,
Worthington said he sees the BSP lifting rates by at least 25 basis points and at most by 50 basis points.
For his part, David Cohen of Action Economics said it would be “pretty difficult" for the BSP "not to at least hike rates by 25 basis points following the June consumer price index."
“We think that they will limit it to 25 basis points, but the central bank is probably a little nervous whether the markets would be satisfied," Cohen said.
He added that the BSP is seen to prefer gradually hiking rates, “while waiting to see how the upcoming data clarify how the fears of accelerating inflation and slowing growth actually turn out."
Global investment bank Lehman Brothers also said the recent statements by monetary officials showed that the BSP will hike rates soon.
“It is no surprise that real interest rates have turned deeply negative and therefore there is a need for BSP to anchor inflation expectations. Deputy Governor Diwa Guinigundo said on June 27 that the bank has scope to increase borrowing costs further without endangering growth, suggesting a rate hike soon," Lehman Brothers said.
Luz Lorenzo, chief economist for the Asia-Pacific region, expressed the same sentiments. She said that the BSP will lift rates by 25 basis points.
Su Sian Lim of the Development Bank of Singapore has also projected a 25-basis point increase in rates following BSP's meeting on Thursday, July 17.
She said that with rising inflation expectations, the “BSP therefore needs to keep raising interest rates."
“I am therefore looking for benchmark rates to be lifted a further 25 basis points. Subsequently, there will be another 50 basis points of tightening before the year is up,"
The move, which intends to control double-digit inflation, will also curb growth in the Philippines, southeast Asia’s fastest growing economy last year. Hiking borrowing costs is expected to discourage lending, putting a hold on private-sector led initiatives to expand their businesses.
Five economists said that the Bangko Sentral ng Pilipinas (BSP) is expected to lift interest rates by a quarter-point when it holds a policy meeting on Thursday.
In June, the Philippines' central monetary authority raised its key policy rates by 25 basis points.
Economists noted that with the BSP planning to tame consumer prices this year by 7 percent to 9 percent, the pressure to curb excess liquidity—the amount of surplus cash in the financial system—has become stronger. They agreed that the BSP will at least raise rates by 25 basis points to 5.5 percent.
Increased cash in the Philippines financial system—brought about by wage hikes and rising transport fares—tend to ramp up demand for consumer goods, leading to higher commodity prices.
The government has reported that June inflation was at 11.4 percent, the highest in 14 years.
“BSP is already behind the curve on inflation so it needs to tighten sharply to have much impact in containing expectations of future inflation," George Worthington, chief economist of Asia-Pacific IFR Markets,
Worthington said he sees the BSP lifting rates by at least 25 basis points and at most by 50 basis points.
For his part, David Cohen of Action Economics said it would be “pretty difficult" for the BSP "not to at least hike rates by 25 basis points following the June consumer price index."
“We think that they will limit it to 25 basis points, but the central bank is probably a little nervous whether the markets would be satisfied," Cohen said.
He added that the BSP is seen to prefer gradually hiking rates, “while waiting to see how the upcoming data clarify how the fears of accelerating inflation and slowing growth actually turn out."
Global investment bank Lehman Brothers also said the recent statements by monetary officials showed that the BSP will hike rates soon.
“It is no surprise that real interest rates have turned deeply negative and therefore there is a need for BSP to anchor inflation expectations. Deputy Governor Diwa Guinigundo said on June 27 that the bank has scope to increase borrowing costs further without endangering growth, suggesting a rate hike soon," Lehman Brothers said.
Luz Lorenzo, chief economist for the Asia-Pacific region, expressed the same sentiments. She said that the BSP will lift rates by 25 basis points.
Su Sian Lim of the Development Bank of Singapore has also projected a 25-basis point increase in rates following BSP's meeting on Thursday, July 17.
She said that with rising inflation expectations, the “BSP therefore needs to keep raising interest rates."
“I am therefore looking for benchmark rates to be lifted a further 25 basis points. Subsequently, there will be another 50 basis points of tightening before the year is up,"
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