Inflation seen doubling PH interest rates by next year

Banking giant HSBC expects Philippines’ key interest rates to nearly double to 4 percent until next year as elevated consumer prices are seen forcing the hand of the Bangko Sentral ng Pilipinas (BSP) to implement hikes.

At the same time, however, it upgraded its forecast for the growth of the country’s economy from 5.7 percent to 6.5 percent this year as it anticipates more infrastructure spending in the country moving forward.

James Cheo, HSBC chief investment officer at Southeast Asia, said that BSP is seen to increase policy rates by 25 basis points (bps) this month and 50 bps by the third quarter in response to the high inflationary environment.

Cheo said that a 25-bps increase was expected each quarter thereafter until the third quarter of 2023.

“These hikes are really intended to front-load and temper inflation expectations,” he said.

Latest BSP hike

In May, the BSP raised the key rates by 25 bps to 2.25 percent after keeping at record low of 2 percent since November 2020 given the rising inflation.

Cheo warned that the increasing commodity prices might hamper economic growth as it would limit consumer spending.

“The Philippine economy faces the headwind from high commodity prices given that it is one of Asia’s largest oil and gas importers and a sizable food importer,” he added.

Rising prices

On Tuesday, the Philippine Statistics Authority reported that May inflation grew to 5.4 percent from 4.1 percent the previous month due to higher food and transport costs.

But the bank remains bullish with the prospects of the country as it expects the incoming administration to continue rolling out the massive infrastructure drive of the Duterte regime.

“The pillars of that growth still very much will be on infrastructure and public investment and that would continue to push through the momentum into 2023,” he explained during a virtual press briefing on Tuesday.

Apart from this, he was also upbeat about the overseas remittances driving the economic growth.

In the first quarter, the country’s gross domestic product grew by 8.3 percent, a reversal from the 3.8-percent decline year-on-year, with the return of more economic activity. INQ