Analysts divided on hike; Balisacan warns of impact

KEY interest rates will likely be increased by 25 basis points (bps) should monetary authorities push through with an off-cycle rate hike, analysts said on Wednesday.

Not all, however, were convinced that the adjustment would materialize today as flagged by Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr.

A Cabinet official, meanwhile, again warned that further monetary tightening could have long-term implications for economic growth.

«It appears he (Remolona) is preparing the market for a hike and market participants appear ready for such a move,» ING Manila Bank senior economist Nicholas Antonio Mapa said.

«Thus market participants are ready, either this Thursday or next,» he added.

China Banking Corp. chief economist Domini Velasquez, however, said a rate hike this soon was unlikely since current indicators remained favorable.

«We do not think the BSP will conduct an off-cycle this week. USD/PHP (the peso-dollar rate) has been behaving so far and our emerging estimate is that inflation in October is going to slow down,» she noted.

«Specifically, prices of key food items (rice, meat, vegetables), electricity and pump prices are down month on month this October… this could ease inflationary pressure and might temper BSP's urge to hike this week.»

Velasquez pointed out that the central bank might also wait for the US Federal Reserve's policy decision next week before deciding to hike or not.

Mapa, for his part, said a rate hike would be for the purpose of safeguarding the 2024 inflation path.

«We are no longer looking at contemporary inflation in October or short term price pressures but potential upside risks to the inflation outlook for 2024,» he added.

This was echoed by Rizal Commercial Banking Corp. chief economist Michael Ricafort, who said that the BSP's hawkish signals could be «something preemptive in nature to better manage both actual inflation as well as inflation expectations in the economy.»

Ricafort also expects a 25 bps increase.

Robert Dan Roces, Security Bank chief economist, said the central bank could be wanting to head off risks to inflation as base effects from last year might not be enough to pull the headline figure lower.

Remolona told