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The key rates of the Bangko Sentral ng Pilipinas (BSP) are anticipated to rise to 5% by the end of 2022 due to variables including rising domestic inflation, a weaker peso, and anticipated future increases in the Federal Reserve funds rate.

After emphasizing that monetary authorities also need to stabilize inflation expectations, Fitch Solutions revised its forecast for the BSP’s main rates for this year on September 23. They made it available to press on Monday.

“The tighter lending conditions globally have also put major pressure on the Philippine peso. The BSP will likely raise interest rates in sync with the US Fed (Federal Reserve) to protect external stability, as the US Fed is expected to raise rates by another 75 basis points before the end of 2022.

The BSP has raised its benchmark rates by 225 basis points since September 22. According to monetary officials, the impact of these rate increases will be mitigated by the domestic economy’s sustained improvement.

Domestic price growth slowed from a five-month ascent to 6.3 percent in August of last year after reaching 6.4 percent the month before, the highest level since October 2018.

The central bank’s target range of 2 to 4 percent until 2024 was far exceeded by the average inflation rate to date, which was 4.9 percent.

Last April, when it escalated to 4.9 percent, the monthly inflation rate broke the government’s goal range, largely due to increases in world oil prices.

According to Fitch Solutions, the average domestic inflation rate is expected to be 5.6 percent this year.

It anticipates that the ongoing conflict between Russia and Ukraine will continue to influence food prices, which are also thought to be impacted by unfavorable weather conditions in several nations that export food.

Despite a drop, it continued, oil prices “remain excessive relative to levels from 2021.”

In contrast to its USD70.95 per barrel projection for 2021, Fitch Solutions’ Oil and Gas team expect that the Brent crude oil price will average USD105 per barrel this year and USD100 per barrel the following year.

In light of this, it stated that the domestic economy’s recovery, which it projects to rise by 6.6 percent this year, up from 6.1 percent earlier, is projected to give room for rate increases.

According to Fitch Solutions, the peso has fallen to 58 versus the US dollar, which is the lowest level for the local currency in 18 years.

It said, “Real interest rate differentials might increase in favor of the US and lead to capital outflows, aggravating downward volatility for the peso, if the BSP chooses to remain silent in following meetings as the US Fed continues to rise.

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