BENGALURU, March 21 (Reuters) - The Philippine central bank will hike its main interest rate by a modest 25 basis points on Thursday, followed by another next quarter, making rates peak higher than previously thought, before pausing until the end of the year, a Reuters poll found.
The latest move would follow a 50 basis point rise in February, part of 400 basis points in total delivered since May. But controlling inflation, close to a 14-year high at 8.6% in February and down only a sliver from 8.7% in January, remains a challenge for the central bank.
Inflation is not expected to fall below the upper end of the 2-4% tolerance band until the third quarter, keeping the central bank on course for further policy tightening.
All but one of the 24 economists in the March 14-20 poll expected the Bangko Sentral ng Pilipinas (BSP) to raise its overnight borrowing rate (PHCBIR=ECI) by 25 basis points, reaching a near 16-year-high of 6.25%, at its March 23 meeting. One saw a 50 basis point move.
"For the coming months, local policy rates could still, at the very least, match any future Fed rate hikes after recent Fed signals and market expectations of about three more Fed rate hikes," wrote Michael Ricafort, chief economist at Rizal Commercial Banking Corp.
The U.S. Federal Reserve is set to raise its federal funds rate by 25 basis points later this week, followed by at least one more move, according to a separate Reuters poll, despite recent signs of stress in the U.S. banking system.
"The timeliness and size of any future local policy rate hikes would also be a function of the behaviour of peso exchange rate, given its impact on import prices and overall inflation," added Ricafort.
The Philippine peso , which dropped around 9% in 2022, is up more than 2% this year.
A majority of economists who held a longer-term view, 12 of 16, now expect the central bank's key interest rate to reach 6.50% or more next quarter, 50 basis points above the last survey's forecast. It was then expected to remain unchanged at that level until the end of 2023.
Only two out of 15 respondents expected at least one rate cut by year-end.
That puts the BSP in a different spot from many other Asian central banks which have either halted or are trying to wind down their tightening campaigns.
"There will be a risk of another hike or two in Q2, if the inflation data fail to cooperate persistently," said Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics.
"BSP's hiking cycle has been one of the most aggressive in the region, and it seems to us as overkill, given that domestic demand is already starting to wobble."
Growth in the Philippines economy was expected to slow to 5.3% this year from 7.6% in 2022, a separate Reuters poll found.
