Philippine Central Bank To Hike Interest Rate By 25 points

The Philippine central bank will hike its main interest rate by a modest 25 basis points on Thursday, followed by another next quarter, making rates peak higher than previously thought, before pausing until the end of the year, a poll found.

The latest move would follow a 50 basis point increase in February, part of a total of 400 basis points delivered since May. Controlling inflation, which was close to a 14-year high of 8.6 percent in February and was only slightly lower than 8.7 percent in January, remains a challenge for the central bank.

Inflation is not expected to fall below the upper end of the 2-4% tolerance band until the third quarter, keeping the Fed on track to tighten policy further.

In a March 14-20 poll, all but one of the 24 economists polled expected the Bangko Sentral ng Pilipinas (BSP) to raise its overnight borrowing rate by 25 basis points, to a near 16-year high of 6.25 percent, at its March 23 meeting. One observed a 50 basis point shift.

"After recent Fed signals and market expectations of about three more Fed rate hikes, local policy rates could still, at the very least, match any future Fed rate hikes in the coming months," wrote Michael Ricafort, chief economist at Rizal Commercial Banking Corp.

Despite recent signs of stress in the U.S. banking system, the Federal Reserve is expected to raise its federal funds rate by 25 basis points later this week, followed by at least one more move, according to a separate Reuters poll.

"The timing and size of any future local policy rate hikes would also be a function of the peso exchange rate's behaviour, given its impact on import prices and overall inflation," Ricafort added.

The Philippine peso, which fell around 9% in 2022, is up more than 2% this year.

A majority of longer-term economists, 12 of 16, now expect the central bank's key interest rate to reach 6.50 percent or higher next quarter, 50 basis points higher than the previous survey's forecast. It was then forecast to remain at that level until the end of 2023.

Only two of the 15 respondents expected at least one rate cut by the end of the year.

This distinguishes the BSP from many other Asian central banks, which have either ceased or are attempting to wind down their tightening campaigns.

"There is a risk of another hike or two in Q2 if inflation data do not cooperate persistently," said Miguel Chanco, Pantheon Macroeconomics' chief emerging Asia economist.

"BSP's hike cycle has been one of the most aggressive in the region, and it appears to us to be overkill, given that domestic demand is already beginning to sag."

A separate poll found that growth in the Philippines' economy is expected to slow to 5.3 percent this year from 7.6 percent in 2022.