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Central Banks Maintain ‘Hawkish’, Philippines CB Kicks Off Tightening Cycle With 25bps hike

ASIA
  • As expected, Philippine central bank (BSP) kicked off tightening cycle earlier this morning by raising the overnight reverse repo rate by 25bps to 2.25% for the first time since 2018.
  • We saw that CPI inflation broke above the 4% upper tolerance band in the past few months (April CPI came in at 4.9%) with policymakers revising the average 2022 inflation forecast to 4.6% (vs. 4.3%).
  • We previously saw that inflationary pressures have started to accelerate in Asia/ SE Asia amid global supply chain disruptions (due to China lockdowns) combined with the Ukraine war shock.
  • The BSP expects inflation to come back within its target range by the end of 2023 (3.9% average inflation forecast for 2023).
  • BSP Governor Diokno said that the upward revision in inflation forecasts were partly driven by the emergence of additional factors such as the higher-than-expected adjustment in minimum wages in some regions.
  • USDPHP continues to trade within a tight range, between 52.20 (50DMA) and 52.50. Support to watch below 52.20 stands at 52.
  • More rate hikes are on the way in the coming meetings, with the policy rate expected to reach 3% by the end of the year.
  • This move follows the recent Asia central banks’ hawkish response to the rise in inflationary pressures since the start of the year (RBI surprised market with a 40bps hike on May 4 and Malaysia also hiked its policy rate by 25bps on May 11).
  • Thailand could also start to tighten on June 8th as inflation has surged above the BoT upper tolerance band.

Source: Bloomberg/MNI

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