BSP may hike rates before yearend

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may resume its tightening cycle by hiking key policy rates before the end of the year amid the recent surge in global rice prices, according to economists.

Aris Dacanay, economist for ASEAN at HSBC, said the BSP is likely to keep interest rates unchanged this week, but may deliver another 25-basis-point hike before the end of the year as inflation accelerated to 5.3 percent in August after easing for six straight months to 4.7 percent from a peak of 8.7 percent in January.

“We change our call for the fourth quarter of 2023 and pencil in another 25-basis-point hike to 6.50 percent in consideration of the recent surge in global rice prices. The hike, however, will be inter-policy dependent. The BSP will unlikely hike the policy rate if the planned tariff reduction on rice is sufficient,” Dacanay said.

The British banking giant originally expects the BSP to keep the benchmark interest rate untouched at 6.25 percent for the rest of the year.

Due to a wide current account deficit and the renewed strength of the dollar, Dacanay said the BSP may cut its policy rate only after the US Federal Reserve cuts its own interest rate.

“Our baseline forecast is for the Fed to begin its easing cycle in the second quarter of 2024,” he said.

HSBC expects the BSP to cut key policy rates by a total of 75 basis points next year, with 25 basis points starting in the second quarter up to the fourth quarter of 2024.

According to Dacanay, the price cap imposed on rice by Malacañang starting Sept. 5 gives the BSP time to keep policy rates steady.

President Marcos issued Executive Order 39 imposing a price cap of P41 per kilo on regular milled rice and P45 per kilo on well-milled rice as