Economist divided over BSP policy direction

MANILA, Philippines — Economists are torn over whether the Bangko Sentral ng Pilipinas (BSP) will deliver another rate hike or leave key policy rates untouched after the government released lower-than-expected inflation in October and stronger-than-anticipated economic expansion in the third quarter.

ING Bank senior economist Nicholas Mapa said the surprising 5.9 percent gross domestic product (GDP) growth in the third quarter opened the door for additional tightening from the BSP.

Mapa said a robust growth coupled with hawkish statements from BSP Governor Eli Remolona Jr. points to at least one more rate hike before the end of the year and possibly two, should BSP’s inflation forecasts for 2024 remain elevated.

“We expect the BSP to hike next week at the Nov. 16 meeting before raising rates to seven percent at the December meeting with BSP predicting that the 2024 inflation will average 4.7 percent year-on-year,” Mapa said.

Including the 25-basis-point off-cycle hike on Oct. 26, the BSP has raised key policy rates by 450 basis points since May last year to tame inflation and stabilize the peso. This brought the benchmark interest rate to a fresh 16-year high of 6.50 percent, the highest since the 7.50 percent in May 2007.

Nalin Chutchotitham, economist for the Philippines at Citi, is now expecting another 25-basis-point rate hike from the BSP this week due to the strong GDP growth and slower rise in the prices of essential goods and service in October.

“We now expect the BSP to hike once more, by 25 basis points to 6.75 percent (with 70 percent probability) next week (this week). The significant upside in GDP growth and the BSP’s expectation of 2024 inflation exceeding target for the third year likely tilt the BSP’s decision toward a hike, despite downside surprise of October inflation,” Chutchotitham said.

According to Chutchotitham, the projection is consistent with its still-hawkish statement post October consumer price index (CPI) data that the BSP wishes to see inflationary expectations better anchored and a sustained downward trend in inflation.

The global banking giant is not expecting any rate cut in the first half of next year where is expects the