Moody’s Analytics, a unit of Moody’s Corp., said Monday the Bangko Sentral ng Pilipinas may be compelled to raise interest rates this week amid the rising inflation rate.
Moody’s Analytics said in a report the adjustment might happen despite the better-than-expected GDP growth of 8.3 percent in the first quarter, a reversal of the 3.8-percent contraction a year ago.
“Despite a largely favorable March quarter performance, the risks to our outlook are tilted to the downside. Chief among them is inflation. Higher prices for food and fuel are challenging the central bank’s accommodative monetary policy settings,” it said.
“We initially expected the first rate hike to take place in June. But the BSP is under increasing pressure to arrest inflation pressures, which could mean a rate hike lands this month,” it said.
It said the timing and pace of interest rate tightening could dent demand and employment recovery, especially in the absence of sizable fiscal support to cushion the economy.
“We expect that monetary tightening will be calibrated to protect growth,” it said.
Inflation accelerated to 4.9 percent in April from 4 percent in March. This was the fastest in more than three years on higher prices of food, transport, oil and electricity.
Data from the Philippine Statistics Authority showed that inflation averaged 3.7 percent in the first four months, near the upper end of the target range of 2 percent to 4 percent.
BSP Governor Benjamin Diokno earlier said the inflation outturn was consistent with the BSP’s assessment that inflation would remain elevated over the near term on continued volatility of global oil and non-oil prices, reflecting largely the continued impact of the conflict in Ukraine on the global commodities market.
Diokno said inflation could settle above the government’s target range in 2022, before decelerating back to target in 2023 as supply-side pressures eased.
He said while there were signs that inflation expectation would be higher for 2022, it remained broadly anchored to the target in 2023.
Diokno said the policy-setting Monetary Board would review its assessment of the inflation outlook and macroeconomic prospects with the release of the first-quarter GDP growth outturn, along with evidence of possible second-round effects and developments in inflation expectations during the monetary policy meeting on May 19.
He said in an interview with Bloomberg the BSP might consider raising interest rates from the record-low of 2 percent by June, amid the improvements in key economic indicators such as the gross domestic product and sustained manageable inflation environment.
The BSP has kept borrowing rate at 2 percent since November 2020. It also brought down the reserve requirement ratio to 12 percent to unleash more liquidity into the financial system and extended provisional advances—a temporary arrangement between the BSP and the national government—to provide the government access to ample cash resources.