Bank of the Philippine Islands, the third-largest lender in terms of assets, said the robust economic growth in the third quarter gives the Bangko Sentral ng Pilipinas the flexibility to further raise the benchmark interest rate to 6 percent.
BPI underscored the stronger-than-expected 7.6-percent gross domestic product expansion in the third quarter.
“The country’s GDP in 3Q exceeded expectations at 7.6 percent despite the surge in consumer prices. Revenge spending and the return of students to face-to-face classes have provided a huge boost to economic growth,” the banking arm of the Ayala Group said in a report Friday.
“This gives the BSP enough space to continue hiking the policy rate, probably even up to 6 percent. Pent-up demand remains strong as indicated by 3Q GDP and may persist until next year since spending on certain items like hotels, restaurants, and recreation is still below the pre-pandemic level,” it said.
It said the number one risk affecting the economy was inflation, with its widespread impact on all sectors of the economy. It said the impact of adjustments in interest rates was less severe, given the relatively low credit utilization in the country.
“Also, most consumer related credit have a fixed rate so they aren’t affected immediately by the hikes. We believe economic growth is robust enough to endure the hikes. Because of this, there is a compelling reason for the BSP to continue hiking interest rates,” BPI said.
The Monetary Board raised on Thursday the benchmark policy rate by 75 basis points to 5 percent to rein in inflation and support the value of the peso against the US dollar.
BSP data showed that the last time the policy interest rate reached 5 percent was in February 2009.
BSP Governor Felipe Medalla said latest baseline forecasts indicated a higher inflation path over the policy horizon, with average inflation breaching the upper end of the 2-percent to 4-percent target range in 2022 and 2023 at 5.8 percent and 4.3 percent, respectively.
The forecast for 2024 was raised slightly to 3.1 percent.
Medalla said the risks to the inflation outlook leaned strongly toward the upside until 2023 while remaining broadly balanced in 2024. He said the upside risks were associated with elevated international food prices owing to higher fertilizer costs, trade restrictions, and adverse weather conditions.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said further rate hikes would be possible in the coming months, supported by generally stronger/better economic data and also as a function of future Fed rate hikes as well as the behavior of the exchange rate.
Inflation in October hit a 14-year high of 7.7 percent from 6.9 percent in September, driven by faster increases in the prices of food and non-alcoholic beverages.
