Double pay: Inflation set to rise in the Philippines

We will look to revise the figure once the central bank releases rebased numbers next week. Despite the dovish notes sounded by the central bank (BSP), we are not convinced that inflation has already been tamed. Indeed, although the sequential increase in CPI should ease in the coming months, we are still worried about the potential uptick in core inflation towards the end of the year.

Moreover, credit growth has been accelerating, reaching a 25-month high of 18% (YoY) in April and we believe that this will show up in increased money supply (M3) growth, stoking inflationary pressures down the line.

We are happy to maintain our call of two more 25bps rate hike by the end of the year, taking the reverse repo rate to 5.00% (from 4.50% currently). That said, we caution that risks to our projection are tilted to the downside. Should the current ‘soft patch’ prove to be more protracted than anticipated, growth issues would dominate again.

Moreover, the BSP appears to be more concerned about excess liquidity and we do not rule out another 100bps hike in the reserve requirement ratio to the pre-crisis high of 21% within the next six months.