MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) still has room to continue raising policy rates, following last week’s off-cycle rate hike, the ASEAN+3 Macroeconomic Research Bureau (AMRO) said. .
In a briefing, AMRO Chief Economist Hoe Ee Khor said the recent 75 basis point hike in the BSP, which took the policy rate to 3.25%, is seen as a preemptive response. and proactive on rising inflation.
“They’ve done three hikes (since May) and it’s now at 3.25 (percent). I think there’s a little more wiggle room given that the neutral rate is probably around four, four plus (percent),” he said.
The 75 basis point rate hike last week follows back-to-back rate hikes of 25 basis points in May and June.
Khor said the BSP’s decision to continue raising rates would depend on the rate of inflation going forward.
“But we’re confident that if the economy is on the right track, there’s no reason it shouldn’t continue to normalize interest rates,” he said.
“Because of the high inflation, I think it sends a strong signal to the rest of the world that the central bank is determined to get inflation down and bring it back into the target range,” he said.
In the first half of the year, the country’s inflation rate averaged 4.4 percent, beating the BSP’s 2-4 percent target, after hitting 6.1 percent in June from 5.4 percent in May.
Given supply disruptions due to the Russian-Ukrainian conflict, AMRO expects the country’s headline inflation to hit 4.4% this year before falling to 3.8% next year.
Asked about the outlook for the country’s economic performance in the second quarter, AMRO economist Andrew Tsang said it could be a lower year-on-year figure compared to 8.3 growth. % observed in the first quarter, due to the high base effect.
The Philippine economy grew by 12% in the second quarter of last year.
AMRO expects the country’s gross domestic product to grow by 6.9 percent this year and 6.5 percent next year.
Tsang said the country’s economic recovery is expected to remain strong this year, with the private sector taking the lead in driving growth through continued policy support.
AMRO expects that legislative measures passed by the previous administration, such as amendments to the Retail Trade Liberalization Act, the Civil Service Act and the Foreign Investment Act, help improve the business environment and encourage more investment in the country.
While AMRO is optimistic about the country’s growth, Tsang said there are risks to the outlook, including a possible outbreak of a more dangerous COVID variant, a protracted war between Russia and Ukraine. and a slowdown in China.
Given the scarring effects caused by the pandemic, including learning losses from school closures, AMRO sees the need for the government to take action to avoid damaging long-term growth.
In addition to continuing to normalize the monetary policy stance based on the strength of the economic recovery and the path of inflation, AMRO recommends continuing to improve public spending programs, while improving the revenue collection.
Matthew Yiu, group leader and chief economist at AMRO, said the plan to tax digital transactions and single-use plastic appears to have the potential to improve revenues.
To minimize the scars, Tsang said fiscal consolidation should be accompanied by targeted support to hard-hit sectors.
To achieve more resilient and sustainable long-term growth, AMRO also sees the need to continue digitalizing the economy.
“Authorities should press ahead with their plans to digitalize the economy, upskill the workforce and improve infrastructure,” Tsang said.