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Philippines: BSP seen to hold off rate hike until 2023
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is expected to maintain its accommodative monetary policy stance until early 2023 as inflation pickup is proving to be transitory.
In its latest research brief, Oxford Economics agreed with the BSP that the current inflationary pressures are for the most part transitory, reflecting supply-side pressures.
This means the central bank is likely to maintain rates at their current levels until the first quarter of 2023 to support full economic recovery.
Oxford economist for the Philippines Makoto Tsuchiya said the think tank’s analysis on Philippine inflation proves that the BSP is correct in its transitory stance.
“The recent surge is transitory and supply side-driven, and that procyclical and persistent forces remain anchored and under control,” Tsuchiya said.
“The transitory and supply-side nature of current inflation means the BSP cannot effectively reduce inflation through monetary policy tools, while the incomplete recovery means the central bank has the incentive to keep rates low to provide much-needed support for the economy,” he said.
It has been a year since the BSP last tweaked its policy rates with a 25-basis-point cut in November 2020.
The BSP will hold its regular policy meet today.
Tsuchiya emphasized that rate hike assumption for the first quarter of 2023 coincides with expectations of the country’s economic recovery being on a much firmer footing.
But he warned that the planned tapering by the US Federal Reserve may force the BSP to hike rates earlier than the fundamentals warrant, in order to prevent a sharp depreciation of the Philippine peso and prolonged inflation.
“Other possible risks include prolonged supply-chain disruptions and high commodity prices, which could force firms to pass along higher costs to consumers more aggressively,” Tsuchiya said.
“But given the nascent recovery in household spending, we expect any pass-through on this front to be limited,” he said.
Tsuchiya said he expects transitory forces to start unwinding as food prices stabilize.
Generally, he said food prices are more vulnerable to supply shocks, including weather-related disruptions, and therefore most food inflation is categorized as transitory.
In terms of oil prices, which fall under imported inflation, Tsuchiya said this would subside next year as demand-supply imbalances are resolved.
Source: https://www.philstar.com/business/2021/11/18/2142029/bsp-seen-hold-rate-hike-until-2023