MB may still hike rates despite pause by Fed


THE pause in the rate hike of the United States Federal Reserve does not bring analysts comfort that the Philippine monetary authorities will take the same position when they meet in two weeks.

Local analysts are not discounting the possibility that the Monetary Board will again raise interest rates after an off-cycle hike of 25 basis points. With the unscheduled rate hike, the target Reverse Repurchase (RRP) Rate is now at 6.5 percent, a new 16-year high.

The Monetary Board is expected to meet on November 16, the second to the last meeting of the monetary authorities for the year. The last meeting is scheduled for December 14.

“While we think they [Monetary Board] can pause, we can’t rule out another hike on November 16 if GDP beats expectations and inflation expectations do not appear to be well anchored and is at risk of straying persistently from its 4-percent target due to second-round effects,” Bank of the Philippine Islands (BPI) Chief Economist Emilio S. Neri told BusinessMirror on Thursday.

Neri said the Monetary Board’s decision will depend on various factors, and the move of the Federal Open Market Committee (FOMC) is only one of them. The considerations will also include the Bangko Sentral ng Pilipinas (BSP) inflation expectations.

Late on Tuesday, the BSP disclosed that it is expecting October inflation to average anywhere between 5.1 percent and 5.9 percent. This is slower than the 6.1-percent inflation posted in September. (full story here: https://businessmirror.com.ph/2023/11/02/bsp-now-projects-october-inflation-at-5-1-5-9/)

However, BSP Governor Eli M. Remolona Jr. earlier alluded to this slower inflation and said it may only be short-lived, as inflation is expected to rear its ugly head soon after. (Full story here: https://businessmirror.com.ph/2023/10/25/bsp-off-cycle-rate-hike-is-on-the-table/)

“With still higher rates for longer still expected, the Fed could still hike rates. For the Philippines, I am still keen on seeing BSP to hike rates as upside inflation risk remains,” Jonathan L. Ravelas, senior adviser at professional services firm Reyes Tacandong & Co., told BusinessMirror.

Monetary Board Member Bruce J. Tolentino told this newspaper on Thursday that factors being closely monitored are the “developments in rice and fuel, as well as ongoing wage negotiations.”

Also being considered are the base effects that could arise and have an impact on inflation not only in October but succeeding months. Tolentino said, however, recent developments are “good” and they are waiting for other data to come in.

“Well there are other data that we are waiting for. Today, we now know that the Fed held their rate, so that’s good. We are waiting for the official PSA (Philippine Statistics Authority) inflation numbers,” Tolentino told BusinessMirror.

“BSP’s October estimated inflation is a bit lower than the actual number for September so that is good, too. The other key numbers are developments in rice and fuel, as well as ongoing wage negotiations. There are also base effects to consider,” he added.

Oxford: Tightening to continue

Meanwhile, Oxford Economics said with US interest rates remaining high and oil prices rising, they expect monetary authorities across Asia and the Pacific region to continue monetary tightening efforts.

In the Philippines, the UK-based think tank said while they were not surprised with the recent 25-basis point rate hike, the fact that the Monetary Board decided to deliver a rate hike through an off-cycle meeting was considered a surprise.

“The Philippines’s central bank decision to also hike rates by a further 25bps—to 6.5 percent–was less of a surprise—inflation rose quite sharply in August and September–though the decision to hike at an ‘off-cycle’ meeting in October was,” the think tank said.

The “big surprise” in October for the think tank was Bank Indonesia’s (BI) decision to hike its policy rate to 6 percent, after a 9-month gap since the previous hike and despite below-target inflation.

It added that the faster core inflation in the third quarter may also spur the Reserve Bank of Australia to hike rates again.

“In general, our hopes of quite a few APAC central banks looking to ease monetary policy to support growth are being thwarted, at least for the time being, by high US rates, a strengthening US dollar and high oil prices,” Oxford Economics said.