DBS economist predicts 100 bps hike in BSP rates by end-’18

By on November 29, 2017


-- An economist of financial giant DBS  Bank Ltd. forecasts a  total of 100 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates until end-2018 as domestic growth remains strong and global interest rates are expected to be on an uptrend. (Photo by Jun Acullador/Flickr, CC BY-ND 2.0)
— An economist of financial giant DBS Bank Ltd. forecasts a total of 100 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates until end-2018 as domestic growth remains strong and global interest rates are expected to be on an uptrend. (Photo by Jun Acullador/Flickr, CC BY-ND 2.0)

MANILA — An economist of financial giant DBS  Bank Ltd. forecasts a  total of 100 basis points increase in the Bangko Sentral ng Pilipinas’ (BSP) key rates until end-2018 as domestic growth remains strong and global interest rates are expected to be on an uptrend.

In a research note, DBS Bank Ltd. Group Research economist Gundy Cahyadi also cited that “excessively weak peso may not be in the best interest of the economy”, thus, the 25 basis points increase projection before end-2017.

BSP’s policy-making Monetary Board (MB) will have its eighth rate setting meeting for this year on Dec. 14 and forecasts vary, but most project the Board to start tightening rates in December given the sustained rise of domestic inflation.

Gundy forecasts the November 2017 inflation to remain at 3.5 percent, same as last October’s level.

As of end-October, rate of price increases averaged at 3.2 percent, in line with the central bank’s average inflation rate projection for the year and within the government’s two to four percent target.

The DBS economist said the domestic economy’s growth momentum “especially investment, remains relatively strong.”

He said the government’s expansionary fiscal policy is among the major drivers for this development, citing the 20 percent increase in loans extended by commercial banks in the third quarter of the year alone and the 8.3 percent  year-on-year growth of government consumption during the same period.

He, however, pointed out that “as the government aims to gradually raise its infrastructure spending to five percent of GDP (gross domestic product), all eyes are on the implementation of the government’s tax reform plans, which are still to be approved by the Senate.”

The Senate, on Tuesday night, approved on third and final reading its version of the proposed tax reform program and the measure is now ready for deliberation by the Bicameral Conference Committee.

“The implication on policy is quite clear, in our view. We expect the Bangko Sentral ng Pilipinas (BSP) to hike rates by 100bps by the end of next year. The investment-led growth is set to continue driving strong import growth going forward,” Gundy added.