Citi, the largest foreign bank in the Philippines, expects the Bangko Sentral ng Pilipinas to increase the policy interest rate by another 50 basis points in the first half of 2023 to 6 percent to tackle the elevated inflation.
Citi Philippines economist Nalin Chutchotitham said in an online briefing Wednesday inflation remained a concern in the medium term.
“Thus we expect the BSP to remain hawkish and hike the policy rate by 50 basis points to 6 percent in the first half of 2023,” Chutchotitham said.
“The continuation of the hike is meant to tackle inflation this year and next year. We see inflation in 2023 to hit 5.3 percent and 3.3 percent next year. We expect inflation to be within the target band by October this year,” she said.
She said food prices remained high, and weather disturbances could impact agriculture this year.
“Inflation is very much on the mind of the BSP, although bigger hikes are not needed anymore [just] like they did last year to defend the peso and give the market enough confidence,” she said.
Chutchotitham predicted that economic growth in the Philippines would settle at 6.2 percent in 2023, slower than 7.6 percent in 2022.
Chutchotitham said based on her forecast, inflation might have peaked at 8.1 percent in December 2022.
Joanna Chua, head of Citi Asia Economics and Strategy, said the bank remained bullish on the economy despite a challenging macro-environment.
“GDP growth in 2022 beat expectations, and we continue to see some upside risks to 2023 growth outlook,” Chua said.
The Bangko Sentral ng Pilipinas said inflation in January likely settled within a range of 7.5 percent to 8.3 percent, amid the higher prices of electricity, fuel and food items.
Inflation in December reached 8.1 percent on faster increases in prices of food and nonalcoholic beverages. The December outturn was faster than 3.1 percent in the same month in 2021.
This brought the average inflation to 5.8 percent in 2022, above the government’s target range of 2 percent to 4 percent and faster than 3.9 percent in 2021.
The BSP earlier reaffirmed its readiness to tweak its monetary policy stance if necessary to rein in inflation in the coming months. The BSP in an open letter to President Ferdinand Marcos Jr. on Jan. 24 said any further monetary policy actions would depend on pertinent economic data.
Economic growth in 2022 was the highest in 46 years and exceeded the 6.5 percent to 7.5 percent target range despite the global headwinds highlighted by higher interest rates and elevated inflation.
The economy gained mainly from the strength of the industry and services sectors.