ABS-CBN poll: BSP to raise rates, May inflation at 8.8%

ABS-CBN News

Posted at Jun 03 2008 11:05 AM | Updated as of Jun 03 2008 07:05 PM


The Bangko Sentral ng Pilipinas (BSP) is likely to raise its benchmark interest rates by at least a quarter-percentage point on Thursday to curb runaway inflation, pushed by higher fuel prices, an ABS-CBN poll among economists said.

Four out of five economists polled Monday said they expect the BSP to tighten monetary policy to grip on inflationary expectations and prevent a wage-price spiral from setting in.

"I don't think the BSP can still take a neutral stance on its policy, given an anticipated further rise in inflation," said Jonathan Ravelas, Banco de Oro chief strategist.

Ravelas sees a 25 basis point increase in the central bank's overnight borrowing rate to 5.25 percent.

But while a hike in interest rates was widely anticipated, IFR Thomson chief economist George Worthington said the BSP might still leave rates unchanged.

"It has consistently said that it would look through these global price pressures and not set policy in response, taking economic slowdown into account."

The BSP last slashed its rates on Jan. 31 to a record low of 5.0 percent for overnight borrowing and 7.0 percent for overnight lending.

Higher inflation in May

Consumer prices in May may have picked up further from a three-year high of 8.3 percent in April mainly due to increases in food and oil prices.

Last month's inflation probably accelerated to 8.8 percent, the lower end of the BSP's range, according to a median estimate in an ABS-CBN survey of five economists. The government will release official May inflation data on Thursday, June 5.

"The risks are clearly to the upside given higher than forecast results in most other countries this month. Higher food and fuel costs are the underlying drivers still, but accelerating services prices suggest that inflationary pressures are becoming more widespread," said Worthington.

The central bank expects year-on-year inflation in May to fall within a range of 8.8-9.6 percent, the upper end being a nine-year high.

Earlier, BSP Governor Amando Tetangco Jr. said a surge in oil prices overseas and here at home as well as an increase in transport fares would affect prices of certain food items.

Tetangco also noted that the weakening of the peso against the US dollar did not help in tempering costs of fuel and rice, two of the country's major imports.