VIEW: J.P.Morgan: BSP Hikes 50bp In Response To Inflation Buildup

J.P.Morgan note that “in today’s statement, the BSP alluded to the shift up in their baseline forecasts, with average inflation (5.4%) projected to breach the 2-4% target range in 2022. Indeed, we have steadily raised our FY22 inflation forecast since the start of the year with FY22 inflation expected to average 5.3% Y/Y vs. our initial estimate of 3.4% at the start of the year. While the BSP expects headline inflation to subside to 4.0% and 3.2% in 2023 and 2024, respectively, the inflation target remains at risk over the policy horizon due to broadening price pressures and further second-round effects from elevated inflation expectations. We concur and expect headline inflation to remain above the BSP’s upper target range through H123 before settling back into the 2-4% range.”

• “High frequency private consumption indicators point to a sub-par pace of recovery, which, in our view, could reflect weak sentiment levels related to strong inflationary pressures faced by consumers. The vigor of pent-up demand looks set to abate faster than we had anticipated, evidenced by the recent Q222 GDP report which highlighted weak private spending momentum. The combination of looming growth headwinds and elevated supply-side price pressures informs our view of a further 25bp monetary policy rate hike in September, bringing the RRP rate to 4.0% in this policy tightening cycle.”