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Fitch Solutions sees BSP raising borrowing rate to 3.25% by end-2022

Julito G. RadabyJulito G. Rada
June 27, 2022, 9:35 pm
in Business, Economy & Trade
Reading Time: 3 mins read
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Fitch Solutions, a unit of Fitch Group, said Monday it expects the Bangko Sentral ng Pilipinas to raise the overnight borrowing rate to 3.25 percent by end-2022, up from its previous forecast of 2.75 percent amid accelerating inflation that may average 5 percent this year.

“This comes after the BSP raised its policy rate by an additional 25 bps [basis points] to 2.50 percent at its monetary policy meeting on June 23. Over the coming months, mounting inflationary pressure and rising global interest rates will prompt the BSP to adopt a more hawkish stance in our view,” Fitch Solutions said in a report.

“The Monetary Board has highlighted that it is prepared to take necessary policy action to bring inflation towards a target-consistent path over the medium term and deliver on its primary mandate of price stability, and that upside risk continue to dominate the inflation outlook up to 2023,” it said.

Fitch Solutions said the ongoing robust economic recovery as shown in the first-quarter gross domestic product growth of 8.3 percent would give the BSP more room to tighten its monetary policy stance.

It said supply-side problems and rising commodity prices led to elevated inflation. “We are raising our average 2022 inflation forecast for the Philippines from 4.5 percent to 5.0 percent, which is in line with the BSP revised forecast,” it said.

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The Monetary Board of the BSP on Thursday raised for the second time this year the benchmark policy interest rate by 25 basis points to 2.5 percent to rein in the rising inflation rate.

Outgoing BSP Governor Benjamin Diokno, in his last policy meeting before taking the helm of the Department of Finance in the Marcos administration, said the interest rates on the overnight deposit and lending facilities were also raised to 2.0 percent and 3.0 percent, respectively.

Diokno said that in deciding to raise the policy interest rate, the Monetary Board noted that upside risks continued to dominate the inflation outlook up to 2023, with pressures emanating from the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply and pending petitions for transport fare hikes.

The board raised the average inflation forecast this year to 5 percent from 4.6 percent. It said inflation may average 4.2 percent in 2023.

Fitch Solutions said it expects inflation to remain elevated over the coming months, relative to historical levels owing to high energy and grain prices and weaker Philippine peso exchange rate, which would drive up imported inflation.

“The ongoing economic recovery will give the BSP more leeway to normalize its monetary policy. The Philippines posted a strong GDP growth of 8.3 percent year-on-year in the first quarter, and we forecast growth to decelerate over the remainder quarters of 2022, which would bring the full-year growth to 6.1 percent,” it said.

“Nonetheless, we acknowledge that the deceleration is mostly due to base effects and a 6.1-percent growth rate would still mark an improvement relative to the 5.6 percent recorded in 2021,” Fitch Solutions said.

It said the gradual easing of COVID-19 restrictions in the Philippines would continue to drive economic recovery.

Tags: Bangko Sentral ng Pilipinasborrowing rateBSPFitch GroupFitch Solutions
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Julito G. Rada

Julito G. Rada

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