IN a recently published research note, economists from Standard Chartered said they now expect monetary policy normalization by the Central Bank to “begin earlier” and “move at a faster pace” after the solid growth rate posted by the country in the first quarter of this year.
The Philippine economy grew at 8.3 percent in the first quarter of the year, the Philippine Statistics Authority (PSA) announced earlier this week.
“The Q1 GDP [gross domestic product] print validates the narrative that the Philippines’ economic recovery has gained traction,” Standard Chartered said, while also raising its GDP forecasts to 8 percent for this year from the previous 7.5 percent due to the strong first quarter performance.
BSP Governor Benjamin Diokno has earlier released a forward guidance of monetary policy exit to the market, saying they will start pulling out from their accommodative rates in the second half of the year.
In Diokno’s latest comment after the announcement of the country’s growth numbers, he said they “[stand] ready to adjust [their] monetary policy settings, should [they] see material risk of these supply-side pressures spilling over to the demand side.”
Standard Chartered said they now project six consecutive policy rate hikes of 25 basis points each, starting in May and ending in December, to bring the policy rate to 3.5 percent by end-2022.
The bank previously expected BSP to start hiking in August, by 50 basis points in the third quarter and 25 basis points per quarter until the third quarter of 2023, to bring the policy rate to 3.5 percent.
“We do not rule out a 50 basis point hike at upcoming meetings if inflation surprises significantly to the upside [6 percent level]. However, our base case assumes that BSP will opt for a measured and gradual pace of rate hikes to support a sustainable economic growth recovery amid still-elevated uncertainty due to the Russia-Ukraine conflict, China’s slowdown, and global monetary policy normalization,” Standard Chartered said.
The BSP is scheduled to have its monetary policy meeting on Thursday, May 19. This will be the third monetary policy setting meeting of the BSP for the year.