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Philippines: Fitch Solutions still sees BSP rate hike this year
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may raise interest rates within the year to contain inflation, which is expected to breach the government’s target, according to the Fitch Group’s research arm.
In a report, Fitch Solutions Country Risk and Industry Research said the BSP may raise interest rates by 75 basis points to 2.75 percent before the year ends.
It said a rate hike may happen given the BSP’s readiness to respond to inflation buildup.
Fitch Solutions raised its inflation estimate for 2022 to 4.5 percent – above the government’s target of two to four percent – due to soaring global oil prices.
Further, Fitch Solutions said China’s zero-COVID policy could impact the global supply chain, pressuring inflation to go up. It pointed out that some ports in China, including in Hong Kong and Shenzhen, are experiencing their worst congestion in five months due to region-wide lockdowns.
The research firm also warned that the release of pent-up demand following the lifting of quarantine restrictions may feed into price pressures from the second to the fourth quarters.
“We expect the combination of rising inflationary pressures, continued economic recovery and rising interest rates around the world to prompt the BSP to tighten its monetary policy over the coming months,” it said.
“We note that major central banks in the US, UK and [Europe] are turning increasingly hawkish. Should the BSP stand pat as the rest of the central banks tighten monetary policy, a narrowing of real interest rate differentials could lead to hot money outflows and downside volatility for the peso, particularly given weakening risk sentiment globally,” Fitch Solutions said.
Nevertheless, Fitch Solutions said the Philippine economy can withstand a rate hike for as long as the government keeps business activities open and border restrictions are eased.
It added that the improving pace of the vaccination program would reduce the possibility of reverting to another lockdown just like in the first two years of the pandemic.
“The government has also continued its accommodative fiscal stance, which could help offset the drag caused by tighter monetary conditions,” Fitch Solutions said.
Last week the policy-setting Monetary Board retained the interest rate for the overnight reverse repurchase facility at a record-low two percent, even as inflation for 2022 was adjusted upward to 4.3 percent due to the series of oil price hikes.
Source: https://www.philstar.com/business/2022/03/29/2170534/fitch-solutions-still-sees-bsp-rate-hike-year