BMI, a unit of Fitch Solutions, said the Bangko Sentral ng Pilipinas may raise the policy rate by another 25 basis points to 6.75 percent in its November meeting because inflation is expected to remain higher over the target range in the coming months.
The 6.1 percent inflation in September was the highest reading since May.
“Our expectations for headline inflation to fall below the BSP’s target of 4.0 percent in Q4 now seem increasingly unlikely,” BMI said in a report Friday.
“With headline inflation expected to stay higher for longer and the BSP’s still hawkish slant, we now expect policy rates to be hiked once more by 25bps in November,” BMI said.
BMI revised its year-end inflation forecast upwards to 4.7 percent from 4 percent and also moved its 2024 average forecast from 3.6 percent to 4.0 percent.
The BSP’s Monetary Board, in an off-cycle meeting Thursday, raised the target reverse repurchase (RRP) rate by 25 basis points to 6.50 percent. The BSP hiked by a cumulative 450 bps its policy rate since the start of its tightening cycle, pushing borrowing costs to their highest since 2007. The key motivation behind the latest decision was to temper inflation expectations.
A Monetary Board statement read by BSP Governor Eli Remolona Jr. said they were prepared to hike once more before the year ends, if necessary.
BMI said further monetary tightening would do little to help curb price pressures. It said the spike in consumer prices was largely driven by supply-side challenges.
India’s export ban led to a surge in rice prices, which rose 17.9 percent year-on-year in September.
BMI said the onset of the El-Nino phenomenon could potentially exacerbate things further, leading to even more volatile food prices.
“As such, we think that inflation will stay elevated until policies aimed at quelling supply side constraints are implemented. This feeds into our forecast for inflation to average 4.0 percent in 2024,” BMI said.
Remolona said he was no longer expecting that inflation would return to the target range of 2 to 4 percent this year.
