50 Basis Point Rate Hike Expected this Week

A majority of analysts are expecting the Banko Sentral ng Pilipinas (BSP) to implement a 50 basis-point (0.5 percent) hike on its key benchmark interest rate at its Monetary Board meeting this Thursday (December 15). In a recent BusinessWorld poll of 15 economists, 13 said they expected a 50 basis-point increase to be announced, while one analyst predicted a smaller 25 basis-point increase, and another predicted the BSP would keep rates unchanged. By in large, the BSP is expected to match the tempo set by the U.S. Federal Reserve, which will have its own rate-setting meeting this week. International investors are expecting the U.S. Fed to adopt a “less aggressive stance,” following “the fastest tightening of monetary policy in 40 years…after four consecutive 75 basis points increases.” More recently, U.S. Fed Chair Jerome Powell has indicated that the “pace of rate hikes could slow in December.” The BSP has increased its key benchmark rate by 300 basis points since May, with the key rate now at 5 percent. Meanwhile, the U.S. Fed has raised interest rates by 375 basis points since March. Analysts expect that the BSP will “maintain a comfortable interest rate differential with the US to support the peso and limit…domestic inflation.” The BSP began monetary tightening later and more gradually than the U.S. Fed’s own tapering program, with then BSP Governor (incumbent Finance Secretary) Benjamin Diokno arguing for maintaining an accommodative monetary policy as long as possible to support the fragile post-pandemic economy. In the medium term, this has left the BSP limited policy options and is likely to “continue mirroring” the U.S. Fed’s own moves.