The question facing policymakers in the Philippines is not whether to raise interest rates for a third time in a row, but by how much.
A booming economy, surging inflation and pressure on the currency are setting the stage for a 50 basis-point increase in the benchmark rate to 4 percent today, according to most of the 17 economists surveyed by Bloomberg.
That would be the biggest hike since 2008 and follows a similar move by Indonesia as central banks in emerging markets take more aggressive steps to curb the fallout from rising US interest rates and a stronger US dollar.
“With rising inflation and inflation expectations, the central bank will likely implement a more aggressive rate increase,” said Euben Paracuelles, an economist at Nomura Holdings Inc in Singapore, who penciled in a half-point increase. “We also expect that they will leave the door open for more rate hikes.”
Facing criticism that the Philippine central bank was too slow to act, Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla has been preparing the markets for more decisive action, saying he will take “strong” steps to rein in inflation after it climbed above 5 percent.
With data today set to show that the economy sustained growth of more than 6 percent in the second quarter this year, a rate hike is all but sealed.
Despite the recent rate increases, the economy is expected to remain strong, supported by the Philippine government’s massive infrastructure program and robust consumer spending.
“There won’t be any significant spillovers to the growth cycle,” said Rahul Bajoria, a senior economist at Barclays PLC in Singapore, who forecast a half-point hike.
The Philippine economy expanded a revised 6.6 percent in the first quarter from a year earlier, the National Statistics Office of the Philippines said yesterday.
Other central banks in Asia are also tightening monetary policy.
Indonesia has raised its benchmark rate by 1 percentage point since May, while India this month increased its policy rate — its second hike this year.
In the Philippines, higher global oil costs, an increase in levies on fuel, sugary drinks and cigarettes as well as record rice prices last month boosted inflation to a five-year high of 5.7 percent.
Inflation is set to breach the central bank’s 2 to 4 percent target band this year, with the Philippine peso’s more than 5 percent slump against the US dollar this year adding to concerns.
The local currency was little changed at 53.02 per US dollar yesterday, while the benchmark stock index gained 1 percent.
The Philippines is the only Southeast Asian economy to have negative real interest rates at minus-2.2 percent.
BSP raised its benchmark rate by 25 basis points at each of its May and June meetings.
The last time the central bank raised the key rate by more than a quarter-point was in July 2008, when it hiked by 50 basis points.
Analysts are to be closely looking at the central bank’s rhetoric today, with officials expected to maintain a hawkish stance.
“A neutral or dovish statement from BSP, even with a 50 basis points hike, is likely to disappoint markets,” said Chidu Narayanan, Asia economist at Standard Chartered PLC in Singapore.
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