Slim majority expect Philippine rate hike on Wednesday: Reuters poll

MANILA (Reuters) – A slim majority of economists believe the Philippines’ central bank will raise interest rates for the second consecutive meeting on Wednesday, but opinions are sharply divided, with the weak peso likely to be the factor that will tilt the scale.

Seven of 12 economists polled by Reuters forecast the Bangko Sentral ng Pilipinas (BSP) would hike its overnight borrowing rate by 25 basis points (bps) on Wednesday as it tries to keep a lid on inflationary pressures.

The other five predicted the central bank would keep the key policy rate steady at 3.25 percent, after it raised it by a quarter of a percentage point for the first time in more than three years in May.

However, some of those calling for a hold on Wednesday said there is a possibility the central bank would raise interest rates in the third quarter to contain second-round effects of high food and fuel prices and manage inflation expectations.

Annual inflation quickened much less than expected in May, but the 4.6 percent print was still the fastest in at least five years, and marked the third straight month that the rate breached the central bank’s 2-4 percent target for the year.

Asked whether a rate hike is on the table this week, Bangko Sentral ng Pilipinas Governor Nestor Espenilla said last week policymakers would have to navigate a “fairly complex environment.”

Joey Cuyegkeng, a Manila-based economist at ING bank, said the BSP bank likely deliver a back-to-back hike on Wednesday to stem the peso’s weakness.

He said expectations of a wider current account deficit and higher interest rates in the United States do not bode well for the peso , which has declined 6.5 percent against the dollar so far this year, making it Asia’s worst performing currency.

“The Philippines would like to have a relatively stable interest rate differential with the U.S.,” Cuyegkeng said.

Those expecting rates to be held steady on Wednesday said the central bank would likely want to assess the impact of its hike in May before deciding on its next course of action.

The lower-than-expected inflation rate in May may have taken some of the pressure off the BSP to pull the trigger again this week, they said.

Michael Ricafort, an economist at RCBC bank in Manila who is calling for a hold on Wednesday, said another 25 bps is possible in the third quarter when year-on-year inflation is forecast to reach its peak.

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