By Shalu Shrivastava
BENGALURU (Reuters) – The Philippine central bank will likely choose to raise interest rates by half a point on Thursday to support a weaker currency and reduce its impact on imported inflation, a Reuters poll of economists showed.
The Philippine peso is down more than 11% for the year, and is one of the worst performing currencies in Asia. Its weak performance against the US dollar, backed by the strong Federal Reserve which is set to deliver another 75 basis point rise on Wednesday, has led to a record trade deficit and higher inflation.
To support the currency and tame inflation, Bangko Sentral ng Pilipinas (BSP) has already raised its policy rate by 175 basis points since May.
More than 60% of economists polled, or 13 of 21, expected a 50 basis point rise to 4.25% at the September 22 meeting, compared with half of economists who had expected 4.00% in the previous poll. If achieved, it would push the borrowing rate to the highest level since August 2019.
Six now expect a quarter-point rise to 4.00%, one expects a 75-basis-point jumbo rise to 4.50%, and one vote in the Sept. 13-19 poll expects no action from BSP.
“The aggressive moves of the US Federal Reserve at a time when the Philippine (balance of payments) is under pressure continues to put pressure on PHP,” said Deepalika Sarkar, an economist at ANZ, referring to the peso.
“It is therefore conceivable that the interest rate increase would need to be more aggressive to reduce foreign exchange volatility and domestic price crossings.”
More than 75%, or 13 of 17, expect the rate to be at 4.50% or higher by the end of the year – which is also the expected peak in this cycle – 50 basis points higher than the previous survey. Eight of them said 4.50% and four 4.75%. The remaining four said 4.25% or less.
Although inflation fell to 6.3% in August from a 4-year high in July of 6.4%, analysts said it has not yet peaked, leaving room for further rate hikes. The central bank targets inflation at 2-4%.
Han Ting Chua, economist at DBS Bank noted.