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MNI BSP Preview - December 2022: 50bps Hike Likely, Keeping Pace With The Fed

  • The case for further tightening is a fairly straight forward one. The most recent CPI print was again stronger than expected, rising to 8% y/y for November. This is double the top-end of the BSP’s 2-4% target range and the firmest y/y pace since 2008. Underlying inflation pressures are also broad based and proving sticky, with core inflation continuing to rise.
  • BSP Governor Medalla stated, prior to the most recent CPI print, that the board would likely consider a 25bps or 50bps move at the December meeting. Given the upside surprise to the inflation outcome post these comments, coupled with few signs of a sharp deterioration in domestic growth prospects, suggests a 50bps move is the more likely outcome, rather than 25bps. This is firmly what the consensus expects as well.
  • The BSP should also take some comfort from the rebound in the Peso FX rate. PHP is still close to 9% weaker YTD, but has rebounded more than 5% versus lows seen in October. A less aggressive move from the BSP at tomorrow’s meeting (say 25bps) could undermine the recent appreciation trend, particularly with the Fed expected to hike rates by 50bps this evening.
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