NextGen Day

MANILA – Following the stronger-than-anticipated expansion in the first quarter, two major global banks raised their growth forecasts for the Philippine economy for 2022, which is also the cause for the planned hikes in central bank rates.

HSBC raised its economic growth forecast for the year to 6.5 percent from 5.7 percent in its worldwide research issued Tuesday and raised the projection for 2023 from 5.3 percent to 5.6 percent.

The economy’s 8.3% expansion in the first three months of this year, it said, is an “excellent opportunity to avoid potential inflation and capital outflows.”

This is because the rate of price increases is likely to accelerate further following April’s 4.9 percent reading, which is already beyond the government’s 2 to 4-percent target.

To date, average inflation has been 3.7 percent, but given the rise in oil and other commodity costs on the worldwide market, authorities and economies alike expect continued acceleration.

“Data indicate that second-round effects are begun to manifest and may continue to do so in the coming months. As a result, we now project inflation to accelerate to 5.5 percent in 2Q22 (second quarter of 2022), up from 4.7 percent previously, before gradually tapering back within the BSP goal range by 1Q23 (first quarter of 2023),” it said.

While the economy continues to improve, dangers such as employment market changes and the rate of vaccination against the coronavirus disease 2019 (Covid-19) remain, according to the research.

As a result, it expects the Bangko Sentral ng Pilipinas (BSP) to raise key rates by 25 basis points during the central bank’s policy-making Monetary Board (MB) rate-setting meeting on May 19 and another 25 basis points in June.

“We expect a 50 basis point hike in 3Q22, followed by a 25 basis point hike in each of the following quarters until 3Q23 (third quarter of 2023), after which the policy rate will remain at 4%,” it continued.

As part of the central bank’s initiatives to help cushion the impact of the epidemic on the domestic economy, the BSP’s key rates have been cut by a total of 200 basis points in 2020.

The BSP’s overnight reverse repurchase (RRP) rate has reached a new low of 2%.

In research released throughout the day, Standard Chartered Bank expects that the BSP’s benchmark rates will be raised by 25 basis points at each rate-setting meeting of the MB from May to December this year, bringing them to 3.5 percent by the end of 2022.

The BSP’s key rates are expected to be lifted by 50 basis points in the third quarter and 25 basis points per quarter through the third quarter of 2023, according to previous projections.

“If inflation surprises significantly to the upside at subsequent meetings, we do not rule out a 50 basis point boost” (6 percent level). “However, our base scenario predicts that the BSP will choose for a controlled and steady pace of rate hikes to support a long-term economic recovery amid still-high uncertainty (due to the Russia-Ukraine conflict, China’s recession, and global monetary policy normalization),” it added.

Standard Chartered has raised its domestic economic growth prediction for this year from 7.5 percent to 8%.

“The first-quarter GDP figure confirms the notion that the Philippines’ economic recovery is gaining steam,” it stated.

A similar decision was taken regarding the year’s inflation prediction, which was lifted from 3.6 percent to 4.5 percent.

“With China’s dynamic zero-Covid policy and the Russia-Ukraine conflict, supply-side disruptions might last all year, keeping commodities prices high.” Furthermore, the strong economic recovery and improving labor market conditions (unemployment fell to 5.8% in March, the lowest level since the epidemic began) could lead to rising inflationary pressures in the months ahead,” it noted.

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