Credit watcher S&P Global Ratings said Wednesday Bangko Sentral ng Pilipinas may begin raising interest rates in the months ahead in the face of higher inflation rate.
“Inflation is likely to rise significantly this year, and we expect the BSP to begin raising interest rates in response,” S&P said.
It said the strong gross domestic product growth would continue to be driven by solid consumption and investment. The robust growth and rising commodity prices were pushing up inflation from less than 2 percent last year.
“New taxes on petrol and luxury goods are also generating further inflation expectations, but given the low starting point, it is not a big concern,” it said.
S&P said inflation rate this year was expected to average 2.9 percent and accelerate further to 3.6 percent in 2018.
Inflation in 2016 averaged 1.8 percent, below the target range of 2 percent to 4 percent.
Headline inflation in January increased to 2.7 percent from 2.6 percent in December 2016.
The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, kept the benchmark interest rates steady on its first meeting for the year on Feb. 9, given the manageable inflation environment and strong economic growth prospects.
It also retained the interest rates of 3.5 percent for overnight lending, 3 percent for overnight borrowing and 2.5 percent for overnight deposits. The reserve requirement ratios were likewise maintained.
The board, however, adjusted upward the inflation forecast this year and next on higher oil prices, and depreciation of the peso, particularly in the last quarter of 2016.
The forecast for 2017 was increased to 3.5 percent from 3.3 percent, while the 2018 forecast was slightly adjusted to 3.1 percent from 3 percent.
The Finance Department said inflation would remain within the government’s target range of 2 percent to 4 percent despite the expected pickup in consumer prices in the months ahead.
“Inflation will likely clock above 2 percent in the coming months as suggested by [January] core inflation of 2.5 percent. Rising energy prices will contribute to higher inflation,” the department said.