The Bangko Sentral ng Pilipinas (BSP) might start raising interest rates as early as next week considering the stronger-than-expected growth of the Philippine economy in the first quarter of 2022.
BSP Governor Benjamin Diokno said last April the Monetary Board might consider raising the central bank’s overnight borrowing rate from a record low of 2 percent in a meeting to be held in June, especially if Philippine gross domestic product (GDP) grew by 6 percent to 7 percent.
Before that, Diokno said any movement might not take place until the second semester of this year.
ING Bank senior Philippines economist Nicholas Mapa said on Thursday that with GDP growth hitting 8.3 percent year-on-year—his was looking at 6.1 percent, lower than the consensus forecast of 6.8 percent—he was “[n]ow fully expecting” the BSP to hike rates at the May 19 policy meeting.
“Robust growth and surging inflation points to a hike from [the BSP] next week,” Mapa said.
Target band
Inflation in April breached the upper end of the government’s target band of 2 percent to 4 percent, registering at 4.9 percent. This was, however, within the BSP’s forecast range of 4.2 percent to 5 percent for the month.
Inflation is expected to trend beyond the target band in the coming months. The BSP expects the full-year average to hit 4.3 percent, but predicts that inflation will ease back to within target in 2023.
Michael Ricafort, chief economist at Rizal Commercial Banking Corp., expects interest rates to go up in June, in tune with Diokno’s latest statement on the matter.
“[R]elatively stronger GDP growth data could support and justify any potential hike in local policy rates as early as June 2022, signaling that the economy is already relatively stronger enough to support/weather any local policy rate hike/s that would help manage both inflation and inflation expectations,” Ricafort said.
He added that a hawkish turn for the BSP would also help maintain comfortable interest rate differentials with the United States Federal Reserve and other central banks that are already well along the tightening path.
The US Fed itself has raised the federal funds rates twice, by a total of 75 basis points (bps), and showed hints that increases of 50 bps may be expected in at least two upcoming meetings.
Meanwhile, the Bankers Association of the Philippines (BAP) congratulated Ferdinand Marcos Jr. for apparently winning “a generally peaceful and orderly election that is positive for the economy.”
BAP president Antonio Moncupa Jr. said, on the other hand, that the economy was facing “considerable headwinds” such as geopolitical uncertainties, inflation and the lingering effects of the pandemic.
“We wish the new administration well in meeting these challenges,” Moncupa said, adding that the BAP looked forward to working with the incoming administration and supporting the nation’s development goals.