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Philippines: Interest rate hike likely by Q4 2022
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to adjust its monetary policy by the last quarter of next year as it prioritizes the country’s economic recovery from the pandemic, an international think tank said.
In a report, UK-based Oxford Economics said central banks in Asia-Pacific are expected to hike key interest rates on a gradual basis.
The accommodative policy stance is expected to persist in the short term as countries in the region and the global economy move to rebound from the pandemic, it said.
“We generally do not expect inflation to rise enough this year to be a major issue for Asia-Pacific central banks, and we do not foresee major pressure from capital outflows,” Oxford economist Louis Kujis said.
“But we do see the central banks of South Korea, China, India and the Philippines starting to lift rates in 2022, sooner than the US Federal Reserve,” he said.
For BSP, Oxford expects rate hikes by the fourth quarter of next year.
BSP Governor Benjamin Diokno earlier said the central bank would keep “this loose monetary policy until such time that we are sure that the government is on its way to recovery, a sustainable recovery.”
Diokno said he sees the BSP keeping interest rates low until the first half of 2022.
Kujis said the Philippines has both a relatively high potential economic growth and inflation that would keep policy interest rates substantially above those in the US.
The latest spike in inflation has lifted expectations for global interest rates, but Oxford said this would remain relatively low compared with historical norms.
Inflation in the country remained at 4.5 percent in April as lower food prices eased sufficiently to offset the continued rise in fuel prices. However, the price of pork, another driver of inflation during the month, has yet to stabilize.
“But we expect this to be temporary and generally don’t expect inflation to be a major issue for Asia Pacific central banks,” Kujis said.
“On the external front, we also think they will not face major pressure from capital outflows. While taper tantrum-type pressure remains on the radar of emerging market policymakers and investors, in our view the external vulnerability of Asian EMs (emerging markets) including India, Indonesia and the Philippines remains moderate,” he said.
The BSP has kept interest rates at record lows for the past six months to help the economy recover from a 9.6 percent economic slump last year, the worst in several decades.
Source: https://www.philstar.com/business/2021/06/04/2102915/interest-rate-hike-likely-q4-2022