According to HSBC Global Research, the rising rice prices everywhere in the world may force the Monetary Board (MB) or the Bangko Sentral ng Pilipinas (BSP) to hike the policy interest rate by 25 basis points later in the year. They expect that the BSP MB will keep the policy interest rate at 6.25% for the fourth consecutive month during its meeting sometime this week.
HSBC Global Research also pointed out that the price ceiling on rice imposed by the state provided the MB with a margin to “keep policy rates steady.”
In the report published by the research arm of the bank, they stated, “This cap will likely keep headline CPI [Consumer Price Index] subdued for the month.” However, they also stated that they changed their forecast for policy rates in the fourth quarter following the “recent surge in global rice prices.”
“Due to upside risks to the CPI, we expect a 25 [basis points] hike in [the fourth quarter] 2023, subject to how much tariffs are reduced on rice,” they explained.
The report noted that the hike would largely be dependent on the impact of the rice price cap and rice tariff reductions.
“The next BSP move will likely depend on what the policy will be on rice after the price cap is lifted by the end of September. Our outlook, however, assumes that only limited policy action is done after the price cap is lifted,” they said.
However, if the proposed tariff reductions would be sufficient to tamp down the acceleration of the inflation rate in the country, the MB will “unlikely” hike the policy rate. “Nonetheless, we flag the risk that the CPI figure in September may be underestimated. The Philippine Statistics Authority may not be able to account for non-compliant retailers that are selling rice at a price above the price cap.”
The HSBC Global Research noted the rice price ceiling would only be able to ease the price pressures in the short term. It could take a toll on the country’s grain supply in the medium turn which could lead to price pressures. “Due to subdued prices, domestic producers may opt not to plant rice paddies in the next harvest cycle while importers will unlikely buy rice abroad with global rice prices higher than the set cap,” they said.
The MB’s next move would be influenced by how much the tariffs on rice imports would be slashed by the national government. “We estimate that if the tariff rate is reduced from 35 percent to 10 percent or less, the price of rice will simply return back to its level in July when India hasn’t restricted its exports of parboiled rice yet. This would negate the impact of the supply shock—thus, giving the BSP no urgent reason to hike.”
The HSBC Global Research report also stated that rice would remain an “inflationary impulse” if the tariffs on imported stocks remained above 10%, forcing the MB to resume its tightening cycle.