DESPITE softening global oil prices, the Bangko Sentral ng Pilipinas (BSP) may remain hawkish through 2019 to curb inflation expectations and stabilize the local currency, an economist from Dutch financial giant ING said.
Nicholas Mapa, ING Philippines economist, said the BSP might hike interest rates by 50 basis points next year, adding that the US Federal Reserve was still expected to continue its “policy normalization” albeit at a less aggressive pace.
The US policy normalization refers to the hike in interest rates to reach the levels seen before the US-epicentered global financial crisis of 2008-2009, after which the US Fed had to loosen monetary policy to address a liquidity crunch.
“Sentiment toward emerging markets has improved substantially in recent weeks. But central banks in Indonesia and the Philippines are likely to remain hawkish to prevent their currencies from depreciating too much next year,” Mapa said in a research note.
Mapa noted that emerging market currencies recovered sharply in November and expected the trio of the Indian rupee (INR), the Indonesian rupiah (IDR) and the Philippine peso (PHP) to continue outperforming over the forecast period.
The economist noted that the BSP had shown readiness “to adjust as necessary to keep inflation expectations well-anchored” even after revising 2019 inflation forecasts to 3.5 percent from 4.3 percent at the last BSP meeting.