By H1 2023, Fitch Solutions anticipates a BSP rate peak.
In anticipation of a persistently high inflation rate, Fitch Solutions Country Risk & Industry Research predicts an additional 75 basis point increase in the Bangko Sentral ng Pilipinas (BSP) main policy rates until the first half of 2023.
The Fitch Group subsidiary forecasts a 25 basis point increase in the first half of next year and a 50 basis point increase in the central bank’s benchmark rates in a study dated Nov. 18, 2022.
The report stated, “The central bank will continue steadfast in containing rising domestic inflation, which we project to average 5.8% in 2022 before falling somewhat to 4.8 percent in 2023.
The overnight reverse repurchase rate reached 5% last week after another 75 basis points were added to the central bank’s benchmark interest rates.
After the average inflation predictions for 2022 and 2023 were raised, monetary authorities underlined that inflation risks still lie to the upside.
The BSP increased its average inflation projection for this year from 5.4 percent to 5.8 percent, and its prediction for next year from 4 percent to 4.3 percent.
From 6.9% in October of the previous year to 7.7% in October last year, the pace of price rises reached an over 14-year high.
As a result, the average inflation rate for the first ten months of this year was 5.4%, exceeding the government’s planned range of 2-4%.
In spite of predictions of persistently high inflation, Fitch Solutions believes that monetary policy tightening will proceed more slowly in the coming months due to stabilizing global monetary conditions and challenges to economic growth.
In 2022, “our projections are in line with consensus, although a little higher than the 5.50 percent in 2023,” the report stated.
According to the monetary authorities quoted in the paper, the latest rate increase is intended to reduce the impact of negative headlines from abroad and currency rate swings.
According to the report, the peso has steadied against the US dollar since October, when it repeatedly fell to a record low of 59.00.
On the basis of the real effective exchange rate, it was added that the local currency is now less overpriced.
The peso is still trading at the 57.26 level at the start of this week from last Friday’s closing price.
If we are correct, the BSP won’t need to rely on drastic rate increases to protect the peso in the future, it said.
According to the research, threats to economic growth are mounting even as the domestic economy continues to recover from the epidemic, with third-quarter GDP accelerating further to 7.6 percent from the previously upwardly revised 7.5 percent in the previous quarter.
The report continued, “Moving forward, we believe that the lag effect of persistent inflation, reduced external demand, and high-interest rates will lead to a slowdown in GDP, which we project to drop from 7.4 percent in 2022 to 5.9 percent in 2023.
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