MANILA – Hawkish statements from Philippine monetary authorities made Fitch Solutions Country Risk and Industry Research hike its policy rate increase projections for the Bangko Sentral ng Pilipinas (BSP) by end-2022 to 4.5 percent.
Citing the 50 basis points increase in the BSP’s key rates last Aug. 18, Fitch Solutions, in a commentary released on Monday, said it revised upwards its earlier projection that the central bank’s key rates will end this year at 4.25 percent.
“Inflation is likely to remain elevated relative to the BSP’s targeted range of 2.0 percent - 4.0 percent and we expect the central bank to tighten policy rate further to rein in inflation,” it said.
The rate of price increases accelerated last July when it rose to 6.4 percent, the highest since October 2018.
The average inflation in the first seven months this year stood at 4.7 percent.
“We believe that the Philippines' economic resilience will also provide more room for the central bank to normalize its monetary policy,” the report said.
This, as the domestic economy continues to post expansion, albeit a slower pace for the second quarter of 2022 at 7.4 percent from 8.2 percent in the previous three months.
Economic growth, as measured by gross domestic product (GDP), averaged at 7.8 percent in the first half of this year, higher than the government’s 6.5-7.5 percent target.
This made Fitch Solutions revised upwards its growth forecast for the country this year to 6.6 percent from 6.1 percent previously.
“While we expect growth will likely slow in H222 (second half 2022) as a result of rising economic headwinds stemming from a softening global economic outlook, tightening monetary conditions, and elevated energy prices, the 2022 economic performance would still be stronger than the 5.6 percent recorded in 2021,” it said.
Aside from hiking its key policy rates, the BSP also increased its average inflation forecast for 2022 from 5 to 5.2 percent, as monetary authorities forecast the continued increase of domestic inflation rate until the fourth quarter of this year.
Fitch Solutions forecasts domestic inflation rate to average at 5.6 percent this year “implying our expectations for inflation to remain well above the 4 percent ceiling of the BSP’s target throughout the rest of the year.”
“Against the backdrop of the ongoing Russia-Ukraine war and adverse weather conditions in several food-producing countries in the region, energy and food prices will continue to be a significant source of upward price pressure in the Philippines,” it said.
The unit of Fitch Group said the key rate hike decisions of central banks around the globe has added depreciation pressures on currencies.
“This will likely prompt the BSP to hike rates further in order to safeguard external stability,” it said.
The local currency has been touching the 56-level against the US dollar since last week and eventually close at this level on Monday. (PNA)