Monetary Board to hike key rates May 5 – DBS

DBS Bank Ltd. expects the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) to raise interest rates by another 25 basis points this Thursday considering that the inflation rate is rising in step with global oil and food prices. The Singapore-based bank said in its Daily Breakfast Spread: “BSP is widely expected to hike the reverse repo rate by 25 basis points to 4.5 percent at the May 5 policy meeting." The Monetary Board had already raised the policy rates by 25 basis points last March 24 to keep inflation expectations down amid escalating prices of oil and food in the world market. This preemptive move brought the overnight borrowing rate to 4.25 percent and the overnight lending rate to 6.25 percent. The Monetary Board was able to keep interest rates at record lows for 20 straight months since July 2009 because of the benign inflation outlook prior to the build up of inflation pressures. DBS expects interest rates to be raised by 100 basis points this year, with the Monetary Board imposing a 25-basis point hike every quarter. “Inflation was 4.3 percent in March and is likely to rise," the bank added. The National Statistics Office (NSO) reported that inflation averaged 4.1 percent in the first quarter of the year from 4.2 percent in the same quarter in 2010. The NSO is set to release April’s inflation figure on Thursday. The BSP said that with inflation last month averaging between 3.7 percent and 4.7, inflation targets could range from 3 percent to 5 percent this year until 2014. The Monetary Board forecasted the country's inflation could likely be closer to its 5 percent target this year due to global price-hikes on oil and food. It expects inflation to peak in the second quarter or third quarter of the year. DBS expects inflation average to increase to 5.6 percent this year from 3.8 percent in 2010 before settling to 5.2 percent by 2012. — MRT/VS, GMA News