Bangko Sentral seen to raise policy rates this year

As inflationary pressures continue to build up, policy rates in the Philippines are expected to increase by as much as 100 basis points this year, according to a London-based think tank and a Switzerland-based banking giant. Capital Economics Ltd. and UBS Investment Bank share the same opinion that the Bangko Sentral ng Pilipinas (BSP) will likely raise its interest rates this year as prices of food and oil continue their uptrend. In a note — titled "Rate hikes in the Philippines only a matter of time" — Capital Economics economist Ashira Perera said the BSP would start raising its policy rates next month to stave off inflationary pressures. "We are sticking with our long-held view that rates need to move up this year to ensure that inflation pressures remain contained," Perera said. "We continue to expect a first move [of policy rates] at the Monetary Board's meeting in March... Rates would climb 100 basis points by end-2011," the economist added. The Monetary Board has placed the overnight borrowing and lending rates at 4 and 6 percent, respectively, since July 2009. On the other hand, UBS economist Edward Teather said in a research note — titled "Asean: Inflation scenarios" — that the Bangko Sentral will possibly raise its overnight borrowing rates by 100 basis points this year and by another 50 basis points next year. Teather said the country's inflation will likely inch up to 4.2 percent this year, from 3.8 percent last year. Perera, meanwhile, said the inflation is expected to fall within the government's target of 3-5 percent, despite the fact that inflation rose to a four-month high of 3.5 percent last month. Perera warned that inflation could settle within the range of 5 and 6 percent if the BSP keeps its key rates unchanged. "Inflation will probably stay below the 5-percent target in 2011... if policy rates move up towards a neutral range," Perera explained. — JE, GMA News