Upward adjustments in the Bangko Sentral ng Pilipinas’ (BSP) average inflation for this and next year are expected as another sign for the possibility for further hikes in the central bank’s key rates, 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 the 2023 forecast, 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 this year at around 8 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 United States 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.

The Bank of the Philippine Island (BPI) forecasts price pressures to remain up and prevent the rate of price increases from decelerating to within the government’s target band in the next nine months.

“With the absence of  structural reforms in the agriculture industry, supply constraints will likely persist,” it said in a report on Thursday.

The report said “importation  of food products may not provide enough relief since global prices of food are also high.”

It forecasts inflation for November and December this year between 7.5 to 7.6 percent, and decelerates starting in the first half of next year “if oil prices stay at current levels.”

“We expect full year average inflation to remain above the 4 percent target of the BSP in 2023,” it added. (PNA)

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