BSP likely to hike key interest rate by 25 bps in December

The Philippine central bank is set to meet tomorrow for its policy decision. According to a DBS Bank research report, the central bank is expected to hike the policy rate by another 25 basis points. This is because of at least two reasons.

Firstly, even if the inflation has eased by more than what market had anticipated, core rate has continued to rise to 5.1 percent from 4.95 percent, suggesting that demand-side drivers continue to be quite strong.

Falling oil prices provide a small window of easing inflationary pressure in addition to the fact that the supply-side contributors will also dissipate next year.

“Inflation would ease from an average 5.2 percent this year to 4.7 percent in 2019, but still stay above BSP upper limit of 4 percent. Secondly, Philippines real rates are still one of the lowest among peers, we think several more rate hikes between December and mid-2019 are warranted to close this gap”, added DBS Bank.