Analysts see another BSP interest rate hike to tame inflation

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Metro Manila (CNN Philippines, September 5) — There is heightened pressure on the government to address rising prices.

With August's inflation at a whopping 6.4 percent, marking a fresh nine-year high for the rate of increase in market prices, analysts expect the Bangko Sentral ng Pilipinas (BSP) to be more aggressive in its inflation targeting measures.

"This higher-than-expected pick-up in headline inflation could further stoke inflation expectations, raising the risk of the BSP hiking again by a relatively aggressive 50bp this month, with possibly more to come," said Nomura Global Markets Research in a statement.

Nomura also cited tax reform, higher oil prices, contagion effects from other emerging markets, and the weaker peso as factors that could further balloon inflation.

Joey Cuyegkeng, senior economist for the Dutch-based ING Bank, said that higher prices may be here to stay.

"We expect inflation to remain elevated for the rest of the year with next month's inflation rate likely to remain above 6 percent and full year average inflation at 5.1 percent, significantly higher than the inflation target range of two to four percent," Cuyegkeng said in a statement.

Cuyegkeng added that inflation could continue to pick up as consumers and businesses anticipate higher prices. In response, the BSP will raise interest rates.

"The chances of another aggressive monetary policy action has zoomed as inflation surged. Another 50bps policy rate hike at the September 27 meeting is a real possibility," he said.

The Monetary Board, the policy-making arm of the BSP, has raised interest rates for the past three consecutive meetings as prices continued to increase in 2018.

"It is most critical at this point to restore inflation back to the target range soonest and securely anchor inflationary expectations," BSP Governor Nestor Espenilla said Wednesday.

He urged the government to likewise help in curbing inflation.

"These warrant more decisive non-monetary measures to fully address," Espenilla added.

The Monetary Board is set to meet on September 27.