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BSP is rumored to be planning additional drastic rate increases.

The Bangko Sentral ng Pilipinas (BSP) is expected to implement more aggressive rate hikes, with the main rates expected to rise from 2.75 percent to 3.25 percent by the end of 2022, according to Fitch Solutions Country Risk and Industry Research.

The section of Fitch Group stated in a study released on Monday that the acceleration of the domestic inflation rate is the main reason for the predicted rate hikes this year, a move that is made possible by the ongoing recovery of the domestic economy.

The BSP would be able to tighten its monetary policy even further in order to combat inflation and protect external stability, it was stated.

The BSP has raised its benchmark rates by 25 basis points each in May and this month, totaling a 50 basis point rise so far this year.

The overnight reverse repurchase (RRP) rate of the central bank is currently 2.5 percent.

This is due to the fact that in May of last year, the rate of price hikes increased even further to a more than three-year high of 5.4 percent, surpassing the government’s goal range of 2-4 percent the month before when it surged to 4.9 percent.

Inflation in the year’s first five months was on average 4.1 percent.

Given supply chain concerns, increases in global commodity costs, domestic supply issues with particular food goods, and supply chain issues in general, Fitch Solution increased its average inflation projection for the Philippines this year from 4.5 percent to 5 percent.

The Monetary Board (MB), which sets policy for the BSP, increased the central bank’s average inflation forecasts for this year and 2023, respectively, from 4.6 percent to 5 percent and 4.2 percent, respectively, during its meeting last week.

It expects inflation to be 3.3 percent on average in 2024, falling within the government’s goal range of 2-4 percent.

According to the Fitch Solutions research, as the government continues to open up the economy, the peso’s decline in value relative to the US dollar, rising local demand, and other factors are all contributing to the elevated inflation rate.

According to the report, the domestic economy is expected to continue to rebound after expanding by 8.3 percent year over year in the first quarter of this year.

However, it predicts that growth will slow down in the upcoming quarters and that the economy would have a 6.1 percent annual output.

Although we agree that the slowdown is mostly the result of base effects, a 6.1 percent growth rate would still be an increase above the 5.6 percent observed in 2021, the statement continued.

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