RCBC’s Michael Ricafort sees inflation peaking in Q4

Upward adjustments in the Bangko Sentral ng Pilipinas’ (BSP) average inflation for 2022 and 2023 signal the possibility for further rate hikes, an economist said.

On Thursday, the BSP adjusted to 5.8 percent from 5.4 percent its average inflation forecast for this year and to 4.3 percent from 4 percent in 2023 after noting that risks to inflation remain on the upside.

Rizal Commercial Banking Corporation chief economist Michael Ricafort forecasts inflation to peak in the last quarter of the year at around eight percent.

“Thus, further local policy rate hikes could still be possible for the coming months, as supported by generally strong economic data; also as a function of future Fed rate hikes as well as the behavior of the peso exchange rate, going forward,” he said.

On Thursday, the BSP’s policy-making Monetary Board (MB) hiked by another 75 basis points the central bank’s key rates, mirroring the adjustment in the Federal Reserve’s key rates earlier this month.

BSP Governor Felipe Medalla cited the importance of maintaining interest rate differential between the US and the Philippines to cushion the impact of the stronger dollar on the peso and ensure price stability, among others.

Ricafort said the projection for another hike in the BSP rates next month “could also be again a pre-emptive move on a possible further Fed rate hike of about +0.50 to 4.50% (upper range of the Fed target) on the next Fed/FOMC (Federal Open Market Committee) rate-setting meeting on Dec.14, 2022.

“Thus, for the coming months, more local policy rate hikes are still possible, if needed, as a function of any further Fed rate hikes in the quest to bring down elevated US inflation/CPI (consumer price index),” he added. (PNA)