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Another rate hike unlikely – HSBC

The Bangko Sentral ng Pilipinas (BSP) will not need to hike interest rates further this year should Congress pass a proposed law that is expected to lower rice prices, banking giant HSBC said.

“[P]assage of a government proposal to end quantitative restrictions (QR) on rice imports should put downward pressure on headline prices and help curb inflation expectations,” HSBC economist Noelan Arbis said in a report released in the wake of the policymaking Monetary Board’s decision to raise key interest rates by 25-basis points on Wednesday.

Arbis was referring to the proposed Rice Tariffication Act, which the government says will bring rice prices down by about P7 per kilo by removing quantitative restrictions on imports of the grain.

The HSBC economist pointed out that food had the largest weighting in the Philippine consumer price index basket at 36.3 percent, with rice accounts for about a quarter of that.


Citing Bangko Sentral estimates, the HSBC economist noted that ending the rice QR could reduce headline inflation by 0.4 percentage point this year if implemented by the third quarter or by 0.2ppt if implemented by the fourth quarter.

Moreover, headline inflation would fall by another 0.6 percentage points in 2019.

“Looming downward pressure on rice prices, therefore, should put a lid on inflation and ease pressures for the BSP to tighten rates further. HSBC expects no further hikes to monetary policy this year,” Arbis said.

The Monetary Board’s decision brought the central bank’s overnight borrowing, lending and deposit rates to 3.5 percent, 4.0 percent and 3.0 percent, respectively.

The rate hike followed an identical 25-bps increase last May 20 – the first in over three years and prompted by inflation having breached the BSP’s 2.0-4.0 target.

In deciding to raise the policy interest rate anew, the Monetary Board noted that inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action.

The Monetary Board, however, trimmed its inflation forecasts for 2018 and 2019 to 4.5 percent and 3.3 percent, respectively, from 4.6 percent and 3.4 percent previously on account of May’s lower-than-expected 4.6 percent inflation.

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