The Bangko Sentral ng Pilipinas (BSP) has elbow room to maintain key interest rates at record-low levels in the coming year until early 2023, during which the economy may have regained its prepandemic luster, according to the chief strategist of local banking giant BDO Unibank.
This, even if the US Federal Reserve had already started unwinding its monetary stimulus and would likely start raising interest rates by June next year, BDO economist Jonathan Ravelas said in an interview with the Inquirer.
In 2022 and 2023, Ravelas said the Philippine domestic economy would likely grow at a faster clip of 6.5 percent compared with the likely full-year expansion of 5 percent for the whole of 2021.
Inflation rate is projected to average at 4.3 percent in the coming year. Although headline inflation would still slightly breach the BSP’s target range of 2 to 4 percent, Ravelas said core inflation would likely average at just 3.5 percent.
Core inflation measures the underlying trend or movement in the average consumer prices by removing volatile items such as those from the food and energy sectors.
In the last four months ending November, Ravelas noted the country’s inflation rate had been on the decline and was likely to settle at 3.6 percent year-on-year this December compared to 4.2 percent in the previous month.
“That is why BSP has a big leeway to keep interest rates unchanged,” Ravelas said.
The earliest BSP rate hike could happen by 2023 for a total of 50 basis points, which would bring the overnight borrowing rate to 2.5 percent, he added. Ravelas assumes that the US Fed would raise interest rates by 50 basis points next year compared with the 75-basis point tightening suggested during the last Fed meeting.
He added recent commodity price curbs would likely mitigate the impact of recent typhoons on near-term inflation.
The downtrend in inflation could continue through the first half of 2022, even assuming that global oil prices would stay high at a range of $70 to $80 per barrel, he said.
However, he acknowledged that there could be risks of oil prices spiking to $100 per barrel in case of colder winters in Western countries or if demand from some countries would grow faster than expected.