Hike rates

BSP to raise rates faster in 2022 — Fitch Group unit

Metro Manila (CNN Philippines, September 27) — The Bangko Sentral ng Pilipinas may raise interest rates earlier than expected in 2022 in a bid to normalize monetary policy, Fitch Solutions said.

In a recent commentary, the US research firm said it now expects the central bank to hike a total of 75 basis points next year, up from its initial forecast of 50 basis points, bringing the key rate to 2.75% by the end of the year.

The Fitch Group unit also signaled policy normalization could begin in the second quarter of next year, ahead of its initial end-2022 forecast.

The BSP is currently adopting an accommodative monetary policy, keeping interest rates at their all-time high of 2% in an effort to stimulate economic activity by encouraging borrowing.

“Our expectation of a more hawkish stance from BSP comes as external monetary policy conditions continue to put pressure on the most dovish emerging market central banks,” Fitch Solutions said, noting that more than half of the members of the Federal Open Market Committee predicted a rate hike for the United States next year.

While the BSP aims to support pandemic-hit domestic demand rather than external pressures, the group said it expects the country “to normalize as soon as possible to anchor the appetite for investors for Philippine assets and temper demand-side inflationary pressures”.

Like the central bank, Fitch Solutions has raised its inflation forecast for this year and next. It now expects the rate of commodity price increases to average 4.5% in 2021 from 4% previously, while it forecasts an inflation rate of 3.7% for 2022. against 3.4% previously.

BSP expects inflation to reach 4.4% this year and 3.3% next year.

“We note that pressure could increase for the BSP to rise if inflation proves to be more rigid and external financing conditions tighten significantly,” Fitch Solutions said.