VIEW: ING: More Where That Came From

ING note that the BSP “had initially taken a more gradualist approach to its tightening cycle, raising rates by 25bp at two separate meetings before Thursday’s off-cycle hike. However, domestic inflation has accelerated well past target, fuelled by the tag-team of commodity price spikes and resurgent domestic demand. The stark depreciation of the PHP has only fanned additional price pressures given how dependent the Philippines is on imported energy and food items. The emergence of second-round effects (wage hikes and transport fare adjustments) suggests that inflation will continue to head higher in the near term. With inflation expected to sustain its ascent, we believe BSP will be busy at the next few policy meetings as well. BSP Governor Medalla will need to sustain the recent hawkish rhetoric to re-anchor inflation expectations and establish the Bank's commitment to fighting inflation. We expect BSP to hike again at least one more time in Q3 with the possibility of further tightening should inflation continue to remain stubbornly high. PHP will get an immediate reprieve in the short term but chronic trade deficits could mean that any rally in the currency may be capped.”