Fitch: Stable economy may prompt PH to tweak key rate to 2.75% by end-2022
The Bangko Sentral ng Pilipinas (BSP) is expected to raise the policy rate to 2.75 percent by the end of 2022—only after getting a clearer picture of how the economy would fare amid the ever-changing makeup of the virus causing COVID-19.
The Monetary Board, in their Dec. 16 meeting, decided to keep overnight borrowing rate at a record low 2 percent based largely on confidence that the rise in the prices of basic commodities continues to be manageable.
In its latest Country Risk & Industry Research, Fitch observed that policymakers continued to be wary of bottlenecks in the supply of commodities, which might prod inflation faster.
Inflation has remained above the BSP’s target range of 2 percent to 4 percent, partly due to high prices of food and energy. The ongoing African swine fever menace as well as disruptions from typhoons and community lockdowns have been keeping prices of pork high.
Risks from Omicron
Meanwhile, disruptions in international shipping as well as rising oil prices are also pushing local energy prices up.
“The [Monetary] Board also noted downside risks to the economy given the emergence of the Omicron variant,” Fitch said, adding that the board kept an accommodative stance in its desire to support economic recovery.
Fitch does not expect BSP to aggressively shift from such stance, as the regulator might wait for a more sustained recovery in the economy and credit growth as well as reduced uncertainty from COVID-19 before beginning its hiking cycle.
“We expect the economy’s recovery and growing market investor pressures for monetary tightening to prompt the BSP to begin its hiking cycle, with a gradual hiking cycle through 2022 … taking it to 2.75 percent by year-end,” it added.
Developments in other markets may increase pressure on the BSP to raise the policy rate, such as forecasts that the US Federal Reserve might raise its own policy rate by 50 basis points in 2022.
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