French banking giant BNP Paribas expects the central bank, Bangko Sentral ng Pilipinas (BSP), to raise its benchmark interest rate by another 75 basis points—ending the year at 6.00 percent—to curb the spillover effects of rising food and fuel prices.

In BNP Paribas’ June global outlook, economist Andrew Freris said the bias toward monetary tightening would likely continue in the Philippines, as well as in most other emerging markets in Asia, through to next year.

The bank sees the BSP’s overnight borrowing settling at around 6.50 percent at end-2009—a possible increase of 125 basis points from the current level of 5.25 percent.

“Recent central bank action in the region indicates that monetary policies will become tighter through higher interest rates and, where possible, through stronger currencies, or a combination of both,” Freris said.

The tighter policy is seen as a necessary measure to temper price pressures. From a benign consumer price increase of 2.8 percent posted last year, BNP Paribas projects a much higher inflation of 8.5 percent this year and 6.5 percent next year.

Central banks tend to tighten monetary policy—such as by hiking interest rates or increasing banks’ reserve requirements—in order to mop up excess money in the system that could otherwise fuel consumer and business spending.

“As global food prices are not expected to peak until early 2009, they will continue to add pressures to locally driven food price increases,” Freris said. “Hence, we expect higher food inflation in 2008, and some deceleration in 2009, but definitely not a return to pre-2008 food inflation rates.”

The Philippines, Hong Kong, Singapore, South Korea and, to some extent, Thailand and Taiwan, are but some of the Asian countries that do not subsidize oil prices and thus allow global rates to be reflected in their domestic prices.

With Philippine inflation hitting a nine-year high of 9.6 percent in May, the BSP early this month hiked its benchmark interest rate by a quarter-percentage point for the first time in three years.

The BSP does not see the current situation of negative interest rates—where inflation is higher than interest rates, thereby putting fixed-income earners at a loss—persisting in the Philippines.

BSP Governor Amando Tetangco Jr. also said that the country’s inflation path would largely depend on the movement of oil and food prices.

For the full year, the BSP expects inflation to average 7.0-9.0 percent and next year 4.0-6.0 percent.