Philippines: BSP rate hike likely in Q4, says Maybank

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may shift to a tightening mode in the latter part of the year as the country emerges as the fastest growing economy in Southeast Asia, Malaysian financial giant Maybank said.

Suhaimi Ilias, chief economist at Maybank, said the Monetary Board may start hiking interest rates by 75 basis points over the next two years after keeping policy rates at record lows for more than a year.

“We expect the rate hike to kick off in the fourth quarter of 2022 with a single 25-basis-point hike to be followed by a 50-basis-point hike in 2023,” Ilias said in a virtual forum.

As part of its COVID-19 response measures, the BSP slashed interest rates by 200 basis points and lowered the reserve requirement ratio (RRR) for banks in 2020 to cushion the impact of the global health crisis on the economy.

The BSP maintained an accommodative monetary policy stance by keeping the benchmark interest rate at an all-time low of two percent to allow the economy to fully recover.

The central bank last tweaked interest rates with a 25-basis-point rate cut in November 2020.

BSP Governor Benjamin Diokno earlier said the central bank is unlikely to increase policy rates in the first half as the economic recovery remains at its nascent stage.

“At this juncture, we are not expecting an RRR cut as the banking system’s loans have rebounded following earlier RRR cuts,” Ilias said.

Despite the expected hike in interest rates, Maybank Kim Eng research analyst Rachelleen Rodriguez sees credit growth accelerating by eight to 12 percent this year.

“So we’re forecasting about eight to 12 percent lending growth for this year for the banks under coverage, and this will be driven by corporate capital expenditure assumption and election spending,” she said.

Bank lending has been growing since August last year after slumping for eight straight months between December 2020 and July 2021 due to uncertainties brought about by the pandemic.

Latest data from the BSP showed the loan disbursements of universal and commercial banks grew at a faster rate of four percent in November.

Total loans released by big banks amounted to P9.35 trillion in end-November last year.

Maybank sees the Philippines as the fastest growing economy this year with a GDP growth of seven percent, from the projected 5.5 percent last year. This is at the lower end of the seven to nine percent target set by economic managers.

Ilias said the projected GDP growth is faster than Vietnam’s 6.7 percent, Malaysia’s six percent, Indonesia’s 5.4 percent, Thailand’s four percent and Singapore’s 3.8 percent.