Moody’s Analytics, a subsidiary of Moody’s Corp., said Monday it expects the Bangko Sentral ng Pilipinas to maintain the policy interest rate at a record low of 2 percent in its meeting Thursday, as inflation remained manageable in the first two months of the year.
“The Philippine central bank will keep its policy rate steady at 2 percent at its March meeting. Bangko Sentral ng Pilipinas has some added breathing space to keep rates on hold because inflation has cooled from its August peak of 4.4 percent year on year,” Moody’s said in a report.
Inflation was unchanged at 3 percent in February, bringing the average in the first two months to 3 percent, representing the midpoint of the target range of 2 percent to 4 percent for the year.
“The central bank is keeping a close watch on inflation expectations; Russia’s invasion of Ukraine has heightened upside risks from high global energy and food prices,” Moody’s Analytics said.
It said the monetary policy was expected to start normalizing in the September quarter.
“Movement restrictions to slow the spread of the Omicron variant of COVID-19 have hurt domestic demand in the opening months of 2022,” Moody’s Analytics said.
Moody’s Analytics is a subsidiary of Moody’s Corp. established in 2007 to focus on non-rating activities, separate from Moody’s Investors Service. It provides economic research regarding risk, performance and financial modeling, consulting, training and software services.
Rizal Commercial Banking Corp. chief economist Michael Ricafort earlier said in an online briefing the BSP might start raising the policy rate of 2 percent by the second half, as some countries were expected to react to further rate hikes by the US Fed.
“[The] widely expected Fed rate hike of +0.25 on March 16, 2022, will 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],” Ricafort said.
“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 would 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.
BSP Governor Benjamin Diokno said, however, the Philippines would not move in sync with the US Federal Reserve after the latter raised interest rates for the first time since 2018.
Diokno 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.”
The Federal Reserve last week increased interest rates and laid out an aggressive plan to push borrowing costs to restrictive levels next year. After keeping its benchmark interest rate anchored near zero since the COVID pandemic struck, the Federal Open Market Committee said it would raise rates by 25 basis points, bringing the rate now into a range of 0.25 percent to 0.5 percent.
The move will correspond with a hike in the prime rate and immediately send financing costs higher for
many forms of consumer borrowing and credit. Fed officials indicated the rate increases will come with slower economic growth this year.
Diokno said there was no certain timetable for the BSP’s exit strategy from its pandemic interventions, especially with the onset of new COVID-19 variants that threaten the sustained recovery of the economy.
He said the timing and conditions under which the BSP would start unwinding its pandemic-induced interventions would continue to be guided by the inflation and growth outlook over the medium term and the risks surrounding such outlook.