A private bank economist said Friday the Bangko Sentral ng Pilipinas is expected to start raising the overnight borrowing rate of 2 percent by the second half this year, as some countries react to further rate hikes by the US Federal Reserve.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said in an online briefing the “widely expected Fed rate hike of +0.25 on March 16, 2022, to be followed my more and earlier Fed rate hikes thereafter [or six more +0.25 Fed rate hikes for the rest of 2022]; and [3-4 +0.25 Fed rate hikes for 2023].”
“Based on the Fed’s dot plot/estimates; possible Fed decision on the reduction of the Fed’s balance sheet by May 2022 could lead to some upward adjustments in policy rates from record lows close to zero percent in other countries, especially in other developed countries,” Ricafort said.
He said these rate adjustments in other countries were expected to maintain healthy interest rate differentials and effectively respond and better manage the recent relatively higher inflation and inflation expectations amid improved global economic recovery prospects.
“Thus, it is a tough and delicate balancing act in managing the monetary policy, going forward, to prevent inflation from spiraling further,” he said.
When asked by much the BSP might raise interest rates this year, Ricafort said it “would be less than the Fed’s; local policy rate hike of at least 0.50-0.75 [less vs. the Fed’s expected total hike of 1.50-1.75], as a function of second-round inflation effects from proposed wage hike and transport fare hike petitions, both of which could potentially lead to higher prices of other affected products and services.”
Inflation in the first two months of 2022 averaged 3 percent, the midpoint of the target range of 2 percent to 4 percent for the year.
BSP Governor Benjamin Diokno said Thursday the Philippines would move independently from the US Federal Reserve which raised interest rates for the first time since 2018.
Diokno said the country’s macroeconomic fundamentals remained strong despite the global pandemic and geopolitical crisis in Eastern Europe.
He said any policy decision by the Monetary Board would remain data driven—such as the latest numbers on inflation and domestic output—to avoid “unintended consequences.”
“We don’t need to move in pace with the Fed… but we will review our inflation outlook in our incoming policy meeting,” Diokno said.