NextGen Day

The Bangko Sentral ng Pilipinas (BSP) is anticipated to increase its key rates to roughly 4% in accordance with ongoing global monetary policy normalization brought on in part by an increase in inflation.

Domestic inflation is expected to average 4.4 percent this year, above the government’s goal range of 2-4 percent, and 3.8 percent the next year, according to the Asean+3 Macroeconomic Research Office (AMRO).

The ongoing crisis between Russia and Ukraine has a detrimental influence on both the rate of price increases resulting from supply-side issues and the expansion of the Philippine economy, according to AMRO Chief Economist Dr. Hoe Ee Khor in a virtual briefing on Wednesday.

In June 2018, the domestic inflation rate increased to 6.1 percent, the highest level since October 2018, partly as a result of rising oil prices and their effects on commodities used to make food and non-food items.

Inflation throughout the first six months of the year averaged 4.4 percent.

Khor stated that the off-cycle 75 basis point rise in the BSP’s key rates on July 14 is a positive development given the expectation that the rate of price increases will remain high.

We believe that is a proactive reaction to inflation that is ramping up, he said.

According to Khor, “there is no reason for the authorities not to end the very supportive monetary policy once the economy is well established and on track.”

He predicts that the BSP rates will rise further until they reach the neutral rate, which is approximately 4%.

Khor did not specify a timeframe, though.

Three times, for a total of 150 basis points (bps), the BSP has raised its key rates: by 25 basis points (bps) in March last year, by 50 bps in June last year, and by 75 bps this week.

Following a total drop of 200 basis points (bps) in 2020, this raised the central bank’s overnight reverse repurchase (RRP) rate from a record-low of 2 percent to 3.25 percent.

Despite the concerns from the threats of novel coronavirus disease 2019 (Covid-19) varieties and weaker global growth, the recovery of the Philippine economy is anticipated to be sustained this year, with an expansion of roughly 6.9 percent.

In its annual consultation report for the Philippines, AMRO published its predictions on Wednesday. It predicts that by 2023, domestic growth will moderate to 6.5 percent, supported by increased government spending and a more robust private sector.

“As global financial conditions are predicted to tighten, capital flow volatility is anticipated to increase in 2022. Additionally, the pandemic’s lasting repercussions have become more obvious, increasing the urgency of taking action to create resilient, sustainable, and inclusive long-term growth, according to the research.

According to Khor, there are still significant indications of an economic recovery, which are supported in part by the economy’s ongoing reopening, expanding private investments, and solid foreign payment position.

He claimed that a number of industries, including the tourist and education sectors, had been left scarred by the pandemic.

The majority of the Philippine economy is powered by the service sector, which was severely impacted by the lockdowns but is slowly rebounding “simply because of the nature of products and services,” he continued.

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