Benjamin Diokno
The Monetary Board (MB) may consider raising its key policy rate in June if the Philippine economy grew by 6 percent to 7 percent in the first quarter, according to MB chair and Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.
In an interview with Bloomberg, Diokno said it might take the MB at least two more meetings before the BSP’s overnight borrowing rate— which has been at a record low of 2 percent since November 2020—will finally rise.
The BSP chief said policymakers were on the lookout for further signs that the recovery of the Philippine economy from the recession in 2020 was gaining traction.
He noted that the gross domestic product (GDP) grew by 5.6 percent in 2021. Also, the World Bank raised expectations for GDP growth for the Philippines in 2022 while lowering the prospects for global GDP.
Economic growth
The government hopes to rev up economic growth this year to within 7 percent and 9 percent, and in succeeding years to within 6 percent to 7 percent.
Diokno said that the purchasing managers’ index—a measure of prevailing trends in the manufacturing and services sectors—has reached 52.4, the highest in three years.
The next MB policy meeting is on May 19 and “we will look at the new data and hopefully it will show a first-quarter growth of maybe around six to seven percent,” he said.
Another cycle
“On the basis of that, maybe we would wait for another cycle—we have another meeting in June—and maybe that’s the time when we will consider the increase in policy rate,” he added.
Asked where he was concerned about the impact of anticipated aggressive rate hikes by the United States Federal Reserve on the Philippine economy, Diokno reiterated that moving in step with the American central bank was not a given.
He pointed out that inflation in the Philippines was about 3 percent while the United States had 8.5 percent.
“Given that, I think we can afford to wait for the next move of the [US] Fed in the next two meetings,” the BSP chief said.
Reacting to this, ING Bank’s senior Philippine economist Nicholas Mapa reiterated their call for the BSP to raise its key policy rate by 50 basis points in June.
“First-quarter GDP [is] likely to show a sustained recovery while inflation is set to breach target yet again as early as April,” Mapa said, meaning that the number could exceed 4 percent.
The economist added that, considering that the BSP was “a bit behind the curve” — late in raising rates compared to others like the US Fed — the Philippine regulator might need to raise its key policy rate by 100 basis points within this year.