Bangko Sentral ng Pilipinas Governor Benjamin Diokno said Wednesday monetary authorities may consider raising interest rates from the record-low 2 percent by June this year on improvements in key economic indicators, such as the gross domestic product growth and sustained manageable inflation environment.
The BSP kept the 2 percent policy rate steady since November 2020. Diokno said in an interview with Bloomberg Markets and Finance the economy rebounded 5.7 percent last year from a contraction of 9.6 percent in 2020 due to the pandemic.
“The economy is seen to grow between 7 percent and 9 percent this year… We see improvements, for example, the manufacturing index is 52.4. That is the highest in three years. Also, FDI [foreign direct investments] last year grew by 52.4 percent. While FDI globally went down, FDI in the Philippines went up,” Diokno said.
“Our next meeting will be on May 19, and we will look at new data, and hopefully it will show a first-quarter growth of maybe around 6 to 7 percent. And on the basis of that, maybe we will wait another cycle, and we have another meeting in June, and maybe that is the time we will consider the increase in policy rate,” Diokno said.
Diokno said there was no need for the Philippines to move in sync with the Federal Reserve’s expected aggressive increase in interest rates.
“What makes the big difference is the real interest rate in the US and the real interest rate in the Philippines. Our inflation is around 3 percent… In the US, it is around 8.5 percent. So given that, I think we can afford to wait as to what will be the move of the Fed in their next two meetings,” he said.
The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, kept the record-low policy rate of 2 percent steady on March 24 amid the continuing manageable inflation environment. The interest rates on the overnight deposit and lending facilities were also kept at 1.5 percent and 2.5 percent, respectively.
Diokno said latest baseline forecasts increased from the previous monetary policy meeting, reflecting the impact of higher global commodity prices. Average inflation could breach the upper end of the 2 percent to 4 percent target range in 2022 at 4.3 percent, higher than the February forecast of 3.7 percent.
He said the average inflation was projected to decline and settle within the target band at 3.6 percent in 2023. Inflation expectations also rose but continued to be anchored to the target band.
The BSP in 2020 reduced the policy rate by a total of 200 basis points to a record-low 2 percent, and the reserve requirement ratios by another 200 basis points to 12 percent to unleash more liquidity into the financial system to be used by individuals and firms for productive activities.
It also extended provisional advances—a temporary arrangement between the BSP and the national government—to provide the government access to ample cash resources while revenue generation is weakened and fulfillment of the borrowing program is challenged by the scale of the borrowing need and the unpredictability of financial markets amid the pandemic.
The BSP has injected around P2.3 trillion worth of liquidity into the domestic economy since the pandemic struck.