Philippine central bank unlikely to raise rates this week

MANILA: The Philippine central bank is edging closer to its first interest rate hike in over three years, but is unlikely to pull the trigger as early as tomorrow despite a sharp pick-up in inflation, a Reuters poll showed.

Only three of 12 analysts now expect a rate move this week, even after data on Tuesday showed the January inflation rate accelerated faster than markets had expected to 4% year-on-year, the highest since October 2014.

A poll conducted prior to the data showed just two economists tipping a rate rise this week, and a fresh survey showed only one in the “hold” camp had since changed his mind.

However, a slim majority are now pencilling in a rate rise at the central bank’s next review in March.

Before the latest price data, economists had been roughly split on a move so early in the year, though a number had argued that tightening in 2018 appeared inevitable.

The central bank may be waiting for confirmation of the price trends in February data.

It had already warned January inflation could hit 4% due to higher taxes and fuel prices, but maintained on Tuesday that the factors driving inflation were “temporary” and “would eventually stabilise”.

However, core inflation, which strips out volatile food and fuel items, also quickened to a near fiveyear high.

“We believe that BSP (the central bank) needs to act in order to anchor inflation expectations and ensure the achievement of its inflation target,” Joey Cuyegkeng, an economist at ING bank in Manila, said in a note.

Cuyegkeng brought forward his rate hike forecast to March from May, joining six other analysts in the poll predicting a hike at the central bank’s March 22 meeting.

Cuyegkeng also now believes the central bank will raise rates three times this year, one more than he expected previously.

“Price pressures are likely to persist for most of this year, which would see higher inflation forecasts,” Cuyegkeng said.

The Philippines held its spot as one of the fastest-expanding economies in Asia last year, posting 6.7% growth and sustaining expectations the central bank could tighten monetary policy this year. — Reuters