BSP seen hiking rates in mid-2011

Business World

THE BANGKO Sentral ng Pilipinas (BSP) will likely start raising its key rates in the middle of next year with inflation expected to rise, the Metropolitan Bank & Trust Co. (Metrobank) said.

“We expect the BSP to be hiking the overnight rates sometime in the middle of 2011, depending on inflation expectations and liquidity concerns on the ground,” wrote Ildemarc C. Bautista, head of the bank’s research department, in a note for the week Dec. 20 to 26, which was released yesterday.

Inflation, he said, is expected to be on the uptick next year.

“A lot of countries are currently experiencing higher inflation regimes, requiring central banks to hike rates. The Philippines will be no exception,” he said.

Inflation, he said, is expected to hit 5.1% next year, after reaching 3.8% this year.

Consumer prices rose by 3% in Nov., higher than the 2.8% in the previous month. In the 11 months to Nov., inflation averaged 3.8%, which was close to the low end of the central bank’s 3.5 to 5.5% target for the year.

The BSP forecasts inflation to reach 3.6% this year. It has set an inflation target of 3.5 to 5.5%, and a forecast of 2.4% for next year.

The BSP’s overnight borrowing and lending rates of 4% and 6%, respectively, have been untouched since July 2009.

The Monetary Board will meet to revisit policy rates on Dec. 29.

Mr. Bautista said the peso is expected to weaken to P44.50 per dollar at the end of this year, changing his previous forecast of P43 per dollar. He said Ireland and Spain’s debt problems are driving the negative investor sentiment.

For 2011, he said, the peso is expected to appreciate again and close the year at P41.50 per dollar.

He said Metrobank still expects the economy to grow by 7.1% this year and by 5.5% in 2011, to be supported by private consumption.

“In 2011, we shall see the initial roll-out of the private-public partnership projects the national government has been bandying around to push infrastructure developments and to jumpstart investment spending amid a tight budget,” he said.

The economy grew by 7.5% as of the end of September, higher than the 5 to 6% growth target for the year.

For 2011, the government is aiming for 7% growth as it expects investments from the PPP projects. It has assumed, however, a 5% growth under its proposed P1.645 trillion budget. -- Louella D. Desiderio