KEY interest rates will likely be kept unchanged this Thursday, but a 25 basispoint hike could be ordered before the end of the year depending on how rice prices turn out, Hong Kong and Shanghai Banking Corp. (HSBC) said on Monday.

“With headline CPI (consumer price index) accelerating last month amid significant price pressures from rice, the monetary policy decision this week will likely be a tough one,” HSBC economist Aris Dacanay said in a report.

“Nonetheless, we expect the Bangko Sentral ng Pilipinas (BSP) to keep its policy rate untouched at 6.25 percent,” he added.

Dacanay, however, said HSBC was changing its forecast for the rest of the year to another 25 basis point increase “in consideration of the recent surge in global rice prices but flag that the hike will be inter-policy dependent…”

The BSP, he added, “will unlikely hike the policy rate” if planned rice tariff cuts turn out to be sufficient.

The central bank’s policy rate currently stands at a 16-year high of 6.25 percent, following 425 basis points (bps) of rate hikes beginning last year.

Pauses were ordered during the last three policy meetings after inflation started easing from January’s 14-year high of 8.7 percent.

Consumer price growth, however, picked up anew in August, primarily due to a surge in rice prices due to the impact of recent typhoons and India’s decision to limit exports.

The government temporarily capped rice prices in response to domestic price spikes, which HSBC said would give monetary authorities room to keep interest rates steady.

The cap will also likely temper September inflation, but HSBC warned that the official figure could be underestimated given that some retailers might not comply with the price restrictions.

It was also noted that price ceilings could lead to a supply crisis, which in turn would lead to renewed price pressures. The government has acknowledged this and said that the cap will be lifted at the end of this month.

To keep rice prices stable, economic managers have suggested that the 35-percent tariff on imports of the grain be cut to as low as zero. A decision, however, has yet to be made.

“[W]e think the decision between hiking the policy rate or keeping it steady will depend on the extent to which the tariff rate on rice is reduced,” HSBC said.

“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 … giving the BSP no urgent reason to hike,” it added.

“However, if the tariff is reduced insufficiently (i.e., above 10 percent), rice would become an inflationary impulse, which would then trigger the BSP to resume its tightening cycle.”

On Monday, Finance Secretary Benjamin Diokno told reporters

that the tariff cut proposal was still being reviewed.

“As discussions are underway, the Department of Finance (DoF) maintains its support for an appropriate policy response that promotes the greatest good for the greatest number of Filipinos,” he said in a message.

“Rest assured that the DoF, in coordination with other relevant government agencies and stakeholders, shall pursue programs and support measures to balance the interests of domestic rice farmers while keeping rice affordable for consumers, especially the poorest households.”

The Monetary Board will meet twice more this year, on November 16 and December 16, to discuss policy.