Fitch Solutions, a unit of Fitch Group, said Monday it expects the Bangko Sentral ng Pilipinas to keep the record-low policy rate of 2 percent this year before increasing it by 75 basis points to 2.75 percent next year.
Fitch Solutions said in a report the BSP’s latest move of keeping the 2-percent policy rate on Thursday was widely expected, given its commitment to support economic recovery from the prolonged COVID-19 pandemic.
“However, with the Philippines still in the process of relaxing domestic COVID-19 restrictions and vaccinating its population, the economic normalization process will stretch into 2022. As such, we believe the BSP will take a gradual approach to monetary policy normalization,” it said.
“We at Fitch Solutions forecast the BSP to begin its hiking cycle in 2022, forecasting the policy rate to rise from 2.0 percent as of end-2021 to 2.75 percent by end-2022,” it said.
Fitch Solutions said it expected the BSP to look past elevated inflation and to the economic recovery. It said indications of an economic recovery were growing, with mobility data and the Purchasing Managers’ Index showing an expansion in activity in October.
It also expects credit demand to pick-up heading into 2022, reducing the need for the unprecedented monetary accommodation from the BSP.
The BSP will conduct its final policy meeting this year on Dec. 16, in which Fitch Solutions expects the policy rate to remain on hold.
“We continue to watch the reopening of the Philippine economy and the COVID-19 situation, which has the potential to delay the economic recovery again,” it said.
Data showed that as of Nov. 17, only 36.7 percent of the Philippine population were fully vaccinated, with issues around vaccine distribution to areas outside Metro Manila and high levels of hesitancy towards the vaccines.
Fitch Solutions said another wave of COVID-19 cases could overwhelm the healthcare sector and result in tighter mobility data over the coming months.