Hike rates

BSP to hike rates by Q3 or earlier – Moody’s – Manila Bulletin

The Bangko Sentral ng Pilipinas (BSP) could raise its benchmark rate in September or sooner as rising energy and food prices weigh on its balance to keep the economy afloat, a watchdog says credit.

Moody’s Analytics, in its latest Asia-Pacific Economic View, said the BSP Monetary Board, which has kept the interest rate low at 2% since November 2020 to support growth, will likely start raising the rate. director in the third quarter.

Moody’s Analytics

“We maintain our expectation that monetary policy will begin to normalize in the September quarter. However, if price increases were to become widespread, BSP would be forced to act quickly to curb inflationary pressures,” Moody’s said.

“BSP is prioritizing economic growth over inflation risks resulting from the Russian-Ukrainian military conflict (but) the risk of high inflation is increasing,” he added.

Moody’s view echoes that of S&P Global Ratings which also expects the BSP to raise the policy rate by 50 basis points (bps) this year to 2.50% to contain inflationary pressures.

The country’s inflation rate is expected to exceed the 2-4% target for this year, with the latest BSP forecasts set at 4.3% for 2021 and 3.6% in 2023.

While inflation rates in January and February were stable at 3%, the Russian-Ukrainian war which began on February 24 put pressure on global and local inflation due to rising energy prices , fuel and foodstuffs.

For March, the BSP expects inflation to rise to 3.7%. That’s the middle of the central bank’s forecast range of 3.3% to 4.1% for March. The government will publish the latest inflation figure on Tuesday 5 April.

At its March 24 monetary policy meeting, the BSP decided to keep the benchmark rate at 2% since, according to BSP Governor Benjamin E.

Diokno, maintaining a low interest rate “will preserve the momentum of the economic recovery in a context of heightened uncertainty”.

Diokno said the BSP is “very aware that inflation is likely to remain high in the coming months, mainly due to domestic and global supply-side pressures.” In these circumstances, it is always preferable to deal with these inflationary pressures through direct, non-monetary intervention.

The BSP said the upside risks to inflation have increased in 2022, while for 2023 the risks are still broadly balanced. Upside risks stem from the shortage of domestic pork and fish supply as well as the potential impact of higher oil prices on transportation rates. Downside risks to inflation are primarily COVID-19 infections and the emergence of new variants.

To manage price pressures, PASB encourages the government to continue implementing social protection measures to cushion the impact of rising crude oil prices.

The BSP has established several anti-inflationary measures which it has recommended to the government for its “great efforts”, since price pressures in this case are best dealt with by non-monetary actions.

Diokno said high inflation “is back with a vengeance.” But the Philippines’ inflation expectations are still intact.

“Inflation expectations remained anchored at target,” he said. Based on the PASB’s survey of private sector economists, respondents expect inflation to stabilize within the government’s target range in 2022, with risks to the inflation outlook tilted to the downside. rise, Diokno said.