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Philippines: BSP seen making lower key rate hikes
AN economist sees the Bangko Sentral ng Pilipinas (BSP) making one or two 0.25-basis-point key rate increases for the rest of 2022.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC), in a report dated Aug. 22, 2022, said the BSP would not hike the key rate by 0.50 or 0.75 in its next policy actions.
Ricafort added that the central bank has already done enough to anchor inflation expectations.
“Aug. 18, 2022 meeting was the last time the BSP will do anything unusual,” said Ricafort.
Ricafort also mentioned that BSP will postpone an earlier plan to further reduce banks’ reserve requirement ratio by the end of 2022. “We do not want to confuse the market,” he said.
It can be recalled that BSP raised its key policy rate for the fourth straight time, by 0.50 to 3.75 on Aug. 18, 2022, in line with market expectations, following the surprise 0.75 local policy rate hike on July 14, 2022.
An update from Fitch Solutions published in a statement on Monday shows that key interest rates of the central bank will end this year at 4.25 percent.
“Inflation is likely to remain elevated relative to the BSP’s targeted range of 2.0 percent to 4.0 percent and we expect the central bank to tighten policy rate further to rein in inflation,” it said.
The rate of price increases accelerated last July when it increased to 6.4 percent, the highest since October 2018.
The average inflation in the first seven months this year stood at 4.7 percent.
“We believe that the Philippines’ economic resilience will also provide more room for the central bank to normalize its monetary policy,” the report said.
The domestic economy is still growing, albeit slower for the second quarter of 2022 at 7.4 percent compared to the 8.2 percent in the first three months.
Gross domestic product growth, the measure for economic activity, averaged 7.8 percent in the first half of this year, exceeding the government’s planned range of 6.5 to 7.5 percent.
As a result, Fitch Solutions increased its growth projection for the country this year from 6.1 percent to 6.6 percent.
“While we expect growth will likely slow in [second half 2022 (H222)] as a result of rising economic headwinds stemming from a softening global economic outlook, tightening monetary conditions and elevated energy prices, the 2022 economic performance would still be stronger than the 5.6 percent recorded in 2021,” said Fitch Solutions.
The Fitch Group unit also mentioned that major rate hike decisions made by central banks worldwide have increased pressure on currencies to depreciate.
“This will likely prompt the BSP to hike rates further in order to safeguard external stability,” Fitch Solutions said.
Source: https://www.manilatimes.net/2022/08/24/business/top-business/bsp-seen-making-lower-key-rate-hikes/1855741