Rates likely to remain unchanged – survey
Through Luz Wendy T. Noble, Journalist
The central bank of the Philippines is expected to keep key rates unchanged at its meeting on Thursday to support the nascent economic recovery amid the pandemic.
But some analysts expect the Bangko Sentral ng Pilipinas (BSP) to start raising interest rates over the next three to four months to synchronize with the tightening of global monetary policy and as the economy is accelerating.
The 16 analysts of a Business world expect the Monetary Board to keep the policy rate at a record high of 2%.
“There is no rush for a rate hike given that our economic recovery is tenuous and annual gross domestic product will only reach 2019 levels this year,” said economist Victor A. Abola. at the University of Asia and the Pacific.
BSP’s focus would remain on supporting the economy, given its previous statements on the coronavirus threat, said Nalin Chutchotitham, Citigroup, Inc.’s Philippines economist.
BSP Governor Benjamin E. Diokno said last week that the emergence of new variants of COVID-19 could delay the reopening of the economy, but more aggressive deployment of vaccination could mitigate that risk.
“Comments suggest BSP continues to prioritize economic recovery and would likely remain patient on normalizing its policy rate,” Ms Chutchotitham said. It expects the central bank to start raising rates by the fourth quarter.
In its December 17 policy review, the Monetary Board kept interest rates unchanged, citing the threat of the more transmissible Omicron variant.
The surge caused by Omicron prompted the government to reimpose a stricter Level 3 alert in Metro Manila and other parts of the country in January. The alert level has been lowered from this month, allowing businesses to increase capacity.
Alvin Joseph A. Arogo, vice president and head of research at the National Bank of the Philippines (PNB), said the central bank may soon become more comfortable tightening monetary policy once the economy recovers. recover by the third quarter of 2022.
“We believe the BSP will likely begin its rate hike cycle on June 23, which will be the second meeting of the Monetary Board after the May 9 election. Additionally, we have a baseline forecast of two 25-point rate hikes basis (pb) this year,” he said.
Diokno said he wants to see four to six consecutive quarters of growth before considering a rate hike.
The economy grew by 7.7% in the last three months of 2021, marking its third consecutive quarter of annual growth and bringing the full-year economic expansion to 5.6%. This is a reversal from the record contraction of 9.6% in 2020.
Slower inflAccording to some analysts, the central bank will buy time to maintain a dovish stance at least in the next policy revisions.
The consumer price index rose 3% in January, If2018 was used for the first time as a reference year from 2012 previously. This was slower than 3.6% in December and was within the 2-4% target.
In 2021, inflation stood at 4.5%, mainly due to higher food and oil prices.
“The Monetary Board could afford to remain accommodative for the time being, notwithstanding the signsIfthe upside risks posed by global crude prices amid a gradually improving Philippine economy,” said Security Bank Corp. chief economist Robert Dan J. Roces.
PASB expectsflsettle at 3.4% this year and 3.2% in 2023.
The central bank would take into account high oil prices and its implications for price stability, said Makoto Tsuchiya, an economist at Oxford Economics.
“This price development, along with our expectation of four U.S. rate hikes this year, will lead the BSP to raise rates in the third quarter to contain inflation, currency depreciation, and possible capital flight.” , did he declare.
The BSP should consider tightening global monetary policy among major central banks in its upcoming policy reviews, said Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila.
“Rate hikes by the Bank of England, policy tightening by the Fed by March and a possible reversal of the European Central Bank’s (ECB) stance within the year could change the situation. Iffinancial market substantially over the next few months,” he said.
The Bank of England began raising interest rates earlier this month, while the ECB officials can do it within the year. The Fed said last month that it was considering a rate hike by March.
Mr Mapa said 2018 was the year the peso fell more than 9% and inflation rose sharply to 6.7%, dragging with it the cost of domestic borrowing. “As such, we expect the BSP to also consider developments related to the impending Fed rate hike when deciding on its strategy for its own exit plan,” he added.
In 2018, the Fed implemented a series of rate hikes against a backdrop of buoyant economic growth and a buoyant labor market.
In the Philippines, this coincided with high inflation, as low food supply caused prices to spike. In the same year, the BSP raised interest rates by a total of 175 basis points.
The BSP last cut interest rates in November 2020. Rates have remained unchanged since then.
After Thursday, the central bank will hold its next policy review on March 24.