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POLL-Philippines c.bank to start tightening in Q4, early hike possible

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Band Shaloo Shrivastava and Devayani Sathyan

BANGALURU, March 22 (Reuters)The Philippines’ central bank will leave policy on hold at Thursday’s meeting to support a nascent recovery, despite a recent U.S. Federal Reserve rate hike and soaring commodity prices since Ukraine’s invasion of Ukraine. Russia, according to a Reuters poll.

Governor Benjamin Diokno said last week that monetary policy would remain accommodative and data dependent, so the central bank would not necessarily follow the Fed.

The Bangko Sentral ng Pilipinas (BSP) can also wait as inflation in the Philippines is within the central bank’s target range of 2% to 4%.

“BSP, in our view, expects economic output to return to pre-COVID levels later this year, paving the way for the start of its upside cycle in the fourth quarter,” Nomura economists noted.

All 17 economists polled in a March 15-21 poll expected the possibility of overnight reverse repurchase PHCBIR=ECI remain at a record low of 2.00% at the March 24 meeting. But it was expected to rise 50 basis points in the final quarter of the year to 2.50%, matching a February poll forecast.

However, rising commodity prices due to the Russian-Ukrainian war are expected to drive up inflation in the Philippines, a net importer of crude oil, raising the potential for a faster rate hike. Indeed, a significant minority of economists, eight out of 17, forecast a rise in the third quarter.

“Rising commodity prices and its implications for growth and inflation have put the BSP in a difficult position,” said Debalika Sarkar, economist at ANZ.

“By its own assessment, annual inflation will rise above the upper end of the 2-4% target range this year if average oil prices stabilize north of $95 a barrel.

Expectations of a further rate hike to 2.75% have been postponed to Q1 2023 compared to Q2 2023 in the last survey.

Philippine peso PHP=, which has fallen about 3% year-to-date, slipped on Friday after the central bank signaled it was in no rush to raise interest rates. Some analysts say the weak currency could still trigger a rate hike.

“BSP will need to adjust its monetary policy to support the declining currency, which will help prevent the build-up of imported inflation,” said Nicholas Mapa, senior economist at ING. Mapa expects a 100 basis point hike by the end of the year.

(Reporting by Shaloo Shrivastava and Devayani Sathyan; Polling by Md. Manzer Hussain and Arsh Mogre; Editing by Jonathan Oatis)

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