The Monetary Board (MB) of the Bangko Sentral ng Pilipinas' (BSP) first hike in its key policy rates will come in early June this year, once May’s presidential and congressional elections are out of the way, London-based think-tank Capital Economics said.

“The upshot is that we expect a first 25 basis points hike in the overnight rate at the BSP meeting in early June. This seems more likely to us than a rate increase at the next [late April] BSP monetary policy review, which is probably too close to the May elections,” Capital Economics said.

Last week, the central bank left its key policy rates unchanged, but continued to unwind some of the other support measures, which are no longer needed. The think-tank said politics complicates when the key overnight rate is moved up from the present 4 percent.

By December this year, Capital Economic is expecting that BSP's policy rates will reach 5 percent.
Likewise, the think-tank said “we anticipate that the peso will eventually appreciate further against the US dollar: our forecast is to 43 by end-2010 from 45.7 now.”

Last week, the BSP also tweaked its inflation forecasts, revising down its 2010 view to 4.6 percent while revising up the 2011 projection to 3.5 percent, which is still comfortably within the 3.5 percent to 5.5 percent target range, and compare to annual inflation of 4.2 percent last month.