Philippines: BSP holds rates despite elevated inflation – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting assess the latest BSP event.

Key Takeaways

“As widely expected, Bangko Sentral ng Pilipinas (BSP) left its policy rates unchanged for the 11th straight meeting today (24 Mar). The overnight reverse repurchase (RRP) rate was maintained at 2.00%, overnight deposit rate at 1.50%, and overnight lending rate at 2.50%.”

“There are greater concerns about the potential broadening of price pressures disanchoring inflation expectations in today’s monetary policy statement, against signs of domestic economic activity gaining stronger traction. This is accompanied by a sharp upward revision in BSP’s inflation forecast for 2022 to 4.3% (from 3.7% projected in Feb; UOB est: 3.5%), surpassing its medium-term target range of 2%-4%, with a higher Dubai oil price assumption of USD102/bbl (previous est: USD83/bbl).”

“Although BSP continues to rely on non-monetary measures to tame inflation for now, it remains to be seen if these measures are enough to contain the potential second-round inflation effects amid petitions for a hike in minimum wage and public transport fare. This alongside a more hawkish Fed tilt and further improvement in domestic economic activities will likely prompt BSP to move up its timeline for rate hikes to 2Q22, in our view. The next Monetary Board meeting will be on 19 May.”