April hike would be 'rash,' says Pantheon Macroeconomics

RAISING the key policy rate would be a “rash” move even as headline inflation is expected to breach the Bangko Sentral ng Pilipinas’ (BSP) target band by the second half of the year, Pantheon Macroeconomics said.

- Katherine K. Chan

In a report on Monday, Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco and Asia Economist Meekita Gupta said an April hike is now “on the table” but the central bank will likely stand pat until next year.

“More aggressive, even if ‘staggered,’ fuel price increases were implemented by the Philippines’ main oil retailers last week, to the point where a target reverse repo rate hike by the Bangko Sentral ng Pilipinas next month is now on the cards,” they said.

However, Mr. Chanco and Ms. Gupta noted that it would be reckless of the BSP to tighten next month as inflation pressures prove supply-driven and amid lingering growth woes.

“Whether or not the Board should hike, however, is a separate question,” Mr. Chanco told BusinessWorld in an email. “From our standpoint, we think that it would be rash.”

“This is not a repeat of 2022, when the economy was booming and global food prices (were) skyrocketing in tandem, which made the energy crisis in 2022 much worse from an inflation standpoint. Fundamentally, there’s also little monetary policy can do to mitigate a supply-side inflation shock,” he added.

Earlier this month, BSP Governor Eli M. Remolona, Jr. said global oil prices staying above $100 per barrel could drive inflation past their 2%-4% target, which could prompt the Monetary Board to lift its key rates.

Finance Secretary Frederick D. Go also said that consistently high energy prices will push the Board to consider tightening as early as next month.

If realized, the central bank would be ending its near two-year easing cycle. Since August 2024, it has slashed the benchmark borrowing rate by a total of 225 basis points (bps) to an over three-year low of 4.25%.