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Updated Sell-Side Views Post Yesterday's Upside Inflation Surprise

BSP

Sell side analysts weigh in on the BSP outlook post yesterday's upside inflation surprise.
Goldman's view is unchanged, albeit with upside risks. ING states the BSP will watch Fed action closely around off-cycle hike risk, see below for more details.

Goldman Sachs: "Today's reading is on the top band of BSP's forecast range of 5.3% to 6.1%. To address the rising rice price, the government is reconsidering to temporarily lower tariff on rice imports regardless its origin. The government has also secured a 5-year rice trade pack with Vietnam, its largest rice supplier. The government said there was no rice shortage in the country. Yesterday, the government removed the price control on rice and started distributing rice to low income families in the capital region. Given this, we think rice price will stabilize (especially coming into the harvest season) in the next couple months (although unlikely in October due to the rebalancing after the removal of price cap).


Going forward, we continue to expect BSP to keep its policy rate unchanged this year. However, we see an increased risk of another 25bp hike in November given today's print and the potential delay in headline inflation returning to BSP target band of 2%-4%."


ING: "The Bangko Sentral ng Pilipinas (BSP) will likely be called into action to quell inflation pressure with a rate hike on the horizon. BSP Governor Eli Remolona has waxed hawkish of late, hinting at further tightening and the possibility of an off-cycle rate increase. We expect the BSP to closely monitor the actions of the Federal Reserve with a potential off-cycle rate hike carried out but only if the Fed hikes in early November.

If the Fed stands still, the BSP could consider further tightening should their own inflation forecasts point to inflation threatening the upper end of the 4% target next year.

The PHP will likely strengthen on prospects for a rate hike in the near term however we expect GDP growth to moderate further given the impact of surging prices on domestic household consumption. "

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