Barclays expects another hike in BSP policy rates

Barclays Capital said the Bangko Sentral ng Pilipinas (BSP) may continue with its tightening stance in the next meeting amid the uptrend in core prices and lingering pressures on inflation expectation.

Prakriti Sofat, Barclays economist, said in a commentary that given the acceleration in core inflation, the BSP will raise the policy rate by 25 basis points to 4.75 percent in July.

“We maintain our view that [monetary authorities] will hike rate given the uptrend in core prices and the risk that headline will breach the top end of the target band in the coming months,” Sofat said.

He added that pipeline inflation pressures will likely persist, especially following the recent release of the new benchmark inflation index.

The National Statistics Office announced that the new index will be used to compile inflation data, which also incorporates minor changes in component weights.

The re-based Philippine headline inflation inched up to 5.2 percent in June from 5 percent in May, breaching the BSP’s 3-percent to 5-percent inflation target for 2011.

However, year-to-date inflation stands at 4.7 percent, slightly below the upper range of the target.

Under the old 2000 base year, inflation likewise inched up to 4.6 percent from 4.5 percent, month-on-month.

Following the June inflation results, BSP Gov. Amando Tetangco Jr. vowed monetary authorities would remain vigilant of the external developments that may put inflation expectations at risk.

He had said that the central bank would ensure that it is geared toward warding off any inflation pressures.

“We believe BSP will allow some currency appreciation to lean into imported price pressures,” Sofat said.

Barclays projects the dollar-peso pair to drift to P41.50:$1 in 12 months.

The peso on July 6 bounced back to 42.89 on the back of the continued positive outlook on the Philippines given the back-to-back credit ratings upgrade from Standard & Poor’s, Moody’s and Fitch Ratings.

The three credit raters assigned Manila a notch below investment grade, sparking renewed risk appetite among investors for Philippine assets.

The BSP said the fundamental factors that influenced the exchange rate are still positive for the peso, citing the balance of payments surplus.