THE Bangko Sentral ng Pilipinas (BSP) may need to deliver a larger interest rate hike as an inflation slowdown could be temporary, Deutsche Bank said.
In its latest Asia Week Ahead report, the global investment bank said it was leaning toward a 50-basis-point increase on Thursday, which would bring the benchmark rate to 5.0 percent.
“We think a more decisive move now from the BSP would reduce the risk that it has to do more later,” Deutsche Bank said.
“May’s lower inflation print, on the surface, seems to imply that inflation is cooling, but our analysis of underlying inflation does not suggest the same,” it added.
Consumer price growth unexpectedly slowed to 6.8 percent last month from 7.2 percent in April, which raised expectations that price pressures may be beginning to ease.
However, Deutsche Bank said “this respite may only be temporary and broad price pressures are still building up in the economy,” it argued.
It said that measures of underlying inflation were continuing to show sustained momentum and the bank also pointed out that core inflation, which rose to 4.1 percent year on year, remained above the BSP's target of 2.0 to 4.0 percent.
Analysts expect the BSP’s policymaking Monetary Board to raise key interest rates anew this Thursday, with most favoring another quarter-point hike.
The BSP has said that it would “take necessary actions to ensure inflation returns to its three-percent target, in keeping with its primary mandate to ensure price stability.”
