A hike in the Jumbo BSP rate is still possible as broader price pressures continue
BANGKO SENTRAL ng Pilipinas (BSP) could rise by about 50 basis points (bps) between delays spillover price results in spite of softer-than-expected topic inflation in May, say economists.
In a statement on Monday, Deutsche Bank Research economist, Junjie Huang, said that price increases may need to increase significantly as last month’s inflation may be temporary, as there is renewed price pressure from electricity. food and other basic goods.
“Our view of a 50 bps BSP hike at the June MB (Monetary Board) meeting remains unchanged as we think the lower print may be temporary – and still above the BSP’s target of 2-4% – as broad price pressures are still building in the economy, and our view of global inflation volatility remains high,” he said.
However, HSBC Senior ASEAN Economist Aris D. Dacanay said the BSP may not be forced to tighten earlier than planned, contrary to what was expected following the central bank governor’s suggestion last month.
“We think this result removes the urgency of the off-cycle rate hike,” he said in a separate statement on Monday. “As of this writing, the May CPI (consumer price index) has provided relief to the peso, reducing the need to tighten monetary policy now to reduce FX (foreign) risk. exchange) -inflation.”
However, Mr. Dacanay expects a 50-bp rate hike at the Monetary Board meeting next week, although he noted that the lower surprise from May’s inflation has raised the 25-bp gap.
BSP Governor Eli M. Remolona, Jr. he said last month that they were considering a tightening of the cycle, citing the risk that the central bank would fall behind the curve amid increasing second-order price effects. He added, however, for them to wait until their June 18 meeting to check Inflation data for May.
May’s inflation reading eased, with the headline rate easing to 6.8% from a three-year high of 7.2% in April, bringing the average rate down to 7.9%. BusinessWorld a survey of 16 economists and the BSP’s forecast of 7.1%-7.9%.
However, core inflation, which is weighing on food prices and faltering energy, breached the central bank’s target for the first time in two-and-a-half years. It reached 4.1% in May, the fastest rate of inflation since the beginning 4.4% was recorded in December 2023.
For Maybank analysts Azril Rosli and Suhaimi Ilias, this means that the second-order effects of the oil shock are growing and continuing to persist.
“Although the BSP continues to highlight the limited effectiveness of monetary policy in dealing with supply shocks, the continued growth in inflation suggests that second-round effects are increasing, especially in the transportation, housing, utilities, and related services sectors,” they said in a June 5 statement.
In April, the Monetary Board reversed its easing cycle by raising the key policy rate by 25 bps to 4.5%, as it sought to contain the effects of the expansionary bleeding and support expected inflation.
Before the MB meeting on April 23, Mr. Remolona also noted that they were trying to focus more on controlling income and inflation for the bottom 30 percent of income families.
Patrick M. Ella, a portfolio manager and economist at Sun Life Investment Management and Trust Corp., said inflation remains at risk of breaking the double-digit mark in July or August.
“But the key point there is (that) core inflation (is still rising),” he said Money Talks with Cathy Yang on One News on Monday. “So that tells you that the results of the second round that the BSP is looking at will have in the following months.”
Mr. Ella did not rule out the 50-bp increase in the June 18 update, but noted that a small 25-bp move could be clear.
Meanwhile, Nomura Global Markets Research now sees inflation in the Philippines reaching 5.5% by the end of the year, slower than its previous estimate of 6.1%, if Brent crude oil trades at an average of $98.4 per barrel this year.
“If we take into account the drop in crude oil prices (in May), we lower our CPI forecast for 2026 to 5.5% after increasing it to 6.1% last month, which partly reflects the volatility of crude oil prices and the rapid passage of fuel prices without the help of research,” said Nabilanis Emuraube Nabilanas Noubeaube in a research report.
However, Mr. Paracuelles and Ms. Amani said the impact of the El Niño season expected later this year poses a risk of inflation, especially food prices.
They expect the central bank to continue tightening this year before tapering again in the second half of 2027.
“We think the BSP will view any further increase in core inflation as a sign of second round results that need to be monitored,” Nomura analysts said. “Nevertheless, we expect no BSP meeting to be out-of-cycle and estimate only 25-bp hikes in each of the next three meetings starting June 18, consistent with headline inflation.”
Last week, the BSP reaffirmed its commitment to return inflation to its 3% target using all necessary monetary policy measures as part of its mandate for price stability.
The Board of Finance still has four regular meetings left this year, scheduled for June 18, Aug. 27, Oct. 22 and Dec. 17. — Katherine K. Chan
