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MNI BSP Preview - March 2023: +25bps Likely

BSP
  • Continued elevated inflation pressures point to an on-going need for a further tightening in policy conditions. Headline and core inflation pressures remain well above BSP’s 2-4% target band. Headline at 8.6% y/y is showing signs of a tentative peak and the Feb print came in below market expectations, which were at 8.9%. Still, the BSP is likely to be mindful of domestic inflation expectations becoming entrenched if the authorities don’t show a willingness/commitment to bring down inflation pressures.
  • In the absence of a scaling back in Fed tightening expectations in recent weeks, we may have seen the consensus expecting a 50bps hike at tomorrow’s policy meeting. This is likely to give the BSP some comfort that it doesn’t need to be as aggressive in further policy adjustments that otherwise might have been the case. Recent comments by Governor Medalla stated though that the central bank’s primary focus remains on price stability, with local financial institutions relatively insulated from offshore developments.
  • The other factor that may come into BSP thinking is signs of less positive growth momentum in the first parts of 2023, with the unemployment rate edging higher and export growth cooling sharply. This is unlikely to be enough to deliver an on hold outcome though, given still very elevated inflation pressures, as outlined above.
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