Oliver Bugarin 13 0 0 4 min to read

Fitch Solutions predicts an increase in the 2022 BSP rate.

Fitch Solutions Country Risk and Industry Research increased its policy rate increase predictions for the Bangko Sentral ng Pilipinas (BSP) by the end-2022 to 4.5 percent as a result of pessimistic pronouncements from the Philippine monetary authorities.

In a statement published on Monday, Fitch Solutions said it had changed its earlier prediction that the central bank’s key rates would end this year at 4.25 percent, citing the 50 basis point hike in the BSP’s key rates last August 18.

It stated that “inflation is likely to continue elevated relative to the BSP’s intended range of 2.0 percent – 4.0 percent and we expect the central bank to tighten policy rates further to rein in inflation.”

When CPI reached 6.4 percent in July of last year, the highest level since October 2018, the rate of price rises quickened.

Inflation throughout the year’s first seven months averaged 4.7 percent.

In the paper, it was said that “we expect that the Philippines’ economic resiliency will also allow additional room for the central bank to normalize its monetary policies.”

This is because the domestic economy is still growing, albeit at a slower rate for the second quarter of 2022 (7.4% vs. 8.2% in the first three months).

GDP growth, a measure of economic activity, averaged 7.8 percent in the first half of this year, exceeding the government’s planned range of 6.5 to 7.5 percent.

As a result, Fitch Solutions increased its growth prediction for the nation this year from 6.1 percent to 6.6 percent.

“While we estimate growth to likely slow in H222 (second half 2022), it would still outperform the 5.6 percent achieved in 2021, the report said. This is due to mounting economic headwinds resulting from a deteriorating global economic outlook, tightening monetary conditions, and elevated energy prices.

The BSP boosted its average inflation prediction for 2022 from 5 to 5.2 percent in addition to raising its key policy rates, as monetary authorities anticipated that domestic inflation would continue to rise through the third quarter of this year.

This year, domestic inflation is expected to average 5.6 percent, according to Fitch Solutions, “implying that we expect inflation to remain substantially above the 4 percent ceiling of the BSP’s objective throughout the rest of the year.”

Energy and food costs “will continue to be a substantial source of increasing price pressure in the Philippines against the backdrop of the ongoing Russia-Ukraine war and unfavorable weather conditions in several food-producing countries in the region,” it said.

The Fitch Group unit claimed that major rate hike decisions made by central banks throughout the world have increased pressure on currencies to depreciate.

This will probably lead to more rate increases by the BSP in order to protect external stability, it warned.

Since last week, the local currency has been dipping below the 56-level versus the US dollar, finally closing at this level on Monday.

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