Philippine Central Bank Hikes 50bp, Possibly Ending Its Tightening Cycle

what happened

The Philippine central bank (BSP) raised its policy rate by 50 basis points, more than markets had expected. Capital Economics economist Jason Tuvey, as reported by Market Talk, sees this move possibly being the final step of the tightening cycle, provided energy prices stabilize and start falling from early next year.

In total, the BSP has tightened by 125 basis points so far. High inflation and a weak peso remain its main concerns. The central bank says it is ready to act further, but Capital Economics expects its focus to shift toward supporting growth soon. Excluding the pandemic, second-quarter GDP growth was the slowest since late 2009, and analysts expect a bumpy recovery over the coming quarters.

If energy costs stay elevated into next year and El Niño pushes up food prices, the BSP may keep rates high for longer than Capital Economics anticipates, or even hike again.

why it matters

For markets, this points to a possible pause in Philippine tightening. A shift from fighting inflation to backing growth could weigh on the peso and affect local bond yields. Energy and food prices will be the key variables to watch.

market impact

Peso and local bonds: high rates support yields, while weaker growth could reduce that support

tags

instruments