Sell-Side Views Post BSP's Off-Cycle Tightening

ING and Barclays both see risks of further tightening from BSP in the near term, following yesterday's off cycle rate hike. Barclays doesn't see the move providing sustained support to PHP, see below for more details.

• ING: "BSP’s off-cycle rate hike indicates Governor Remolona’s commitment to price stability as he hopes to corral inflation expectations. Remolona has hinted in the past that he would possibly need to hike more than once, and we therefore expect at least one more rate hike from the BSP before the end of the year. Remolona has also indicated that he believes policy rates can rise to 6.75% before harming the economy. However, given that price pressures remain largely supply-side in nature, we expect inflation to stay elevated until supply-side remedies are implemented. Against this backdrop of higher rates and inflation, economic growth appears to be slowing and we believe the full impact of previous BSP tightening will be felt by early 2024. We are therefore likely to lower our GDP growth forecasts (4.7% year-on-year and 4.5% YoY) while retaining our inflation forecasts for 2023 and 2024 (6.0% YoY and 4% YoY)."
• Barclays: "The BSP delivered a 25bp off-cycle hike today, noting that "urgent" action was needed to anchor inflation expectations. High inflation forecasts and a hawkish tone suggest to us that the bank is likely to hike again in December and start cuts only in Q3 now. The move is unlikely to trigger a sustained relief in the PHP." "Stabilisation in the broad USD, US rates and oil prices is a necessary condition, but likely insufficient to trigger some relief in the currency. USDPHP remains caught between structural headwinds from weaker external metrics and rich REER valuations versus favourable seasonality for remittances in Q4 in the near-term."