Fed’s 2022 moves seen prompting BSP response

Pressure on the Bangko Sentral ng Pilipinas (BSP) to start tightening its accommodative policy stance may be building up as Fitch Ratings now believes that the US Federal Reserve will raise its policy interest rate by 25 basis points twice this year and four times in 2023.

This latest projection is twice more than what Fitch made last December, when the credit rating watchdog said it expected the US regulator to raise rate once this year and twice next year.

Economists expect the US Fed’s moves to send ripples across the globe, prompting other regulators, including the BSP, to take their cue from the Americans.

“Fitch Ratings expects the Fed to raise rates twice in 2022 and four times in 2023, taking the Fed funds rate to 1.75 percent by end-2023 from 0.25 percent currently,” the company said in a research note.

“We believe this year’s rate rises will come at the Fed’s June and September policy meetings,” Fitch Ratings said. “The omicron variant [of COVID-19] may delay the advent of maximum employment ahead of the [US Fed’s] March meeting.”

Fitch updated its US interest rate forecasts to reflect developments at the US Fed’s policy meeting held on Dec. 14-15.

In particular, Fitch noted that the US Fed described inflation as having exceeded 2 percent “for some time.”

“Also, the [US] Fed is now characterizing inflation as a potential threat to a sustained economic recovery and emphasizing the need to anchor expectations to avoid sharper policy tightening later on,” it added.

In November, Deutsche Bank chief Asia economist Juliana Lee said most Asian economies will have returned at least to their pre-COVID levels of activity only by around the middle of 2022, allowing central banks to begin normalizing policy settings.

In December, BSP Governor Benjamin Diokno said the timing of monetary policy normalization will depend primarily on data outturns over the next few quarters.