AT least one more Bangko Sentral ng Pilipinas (BSP) rate hike is likely this year with more possible if inflation surges, Nomura said.
Catch-up spending by the government should support economic growth, which would allow the central bank to proceed with further tightening, it said in a report issued after last Thursday’s 25-basis point rate hike.
Nomura noted that BSP Governor Eli Remolona Jr. had suggested that monetary authorities were now more confident that fiscal policy would help boost economic growth as state spending recovers after last year’s flood control project scandal.
While inflation is likely to remain above the 2.0- to 4.0-percent target in the next few months, Nomura said the BSP was likely to pause during its next policy meeting in June and then raise rates by another 25 bps to 4.75 percent in August.
“At that point, we also see GDP (gross domestic product) growth starting to recover, as the government implements catch-up spending plans, allowing BSP to hike again,” Nomura said.
Budget department data showed that utilization improved in the first three months of the year as government agencies accelerated spending in the wake of last year’s corruption mess.
At 98.5 percent, utilization was markedly higher than February’s 87 percent but was slightly lower than the year-earlier 99 percent.
In ending an easing cycle, the BSP said that the inflation outlook had “deteriorated.” Last Friday, Remolona said “the market needs to understand that we will do what is necessary to contain inflation.”
“At the moment, that seems like a succession of modest rate hikes.”
Nomura said the risk to its forecast of one more 25-bps hike was a frontloaded increase in June that would be followed by more.
“This is contingent on energy prices rising further, which will in turn depend on how the situation in the Middle East evolves in the coming weeks,” it said.
Nomura noted that inflation was of particular concern to the BSP and any upside surprises could be seen as “a threat to its goal of anchoring inflation expectations.”
The central bank’s having raised its inflation forecasts for this year and the next “will also likely have some influence, in our view.”
The BSP last Thursday sharply raised its 2026 and 2027 inflation forecasts to 6.3 and 4.3 percent, respectively, from 5.1 percent and 3.8 percent.
