FINANCIAL-information services provider Fitch Solutions Inc. said more rate hikes are in the cards for the country this year, even after the back-to-back rate hikes by monetary authorities in July and August.
In a research note published on Monday, Fitch Solutions—the research arm of Fitch Group—said they are revising their end-of-year monetary policy forecast from 4.25 percent to 4.5 percent.
The central bank’s benchmark rate is currently at 3.75 percent, after the Bangko Sentral ng Pilipinas (BSP) unleashed a 75-basis point off-cycle rate hike in July and another 50-basis point increase in their scheduled August meeting last week.
“Looking ahead, a combination of strong economic growth and an elevated inflationary backdrop will prompt the BSP to remain hawkish in our view,” Fitch Solutions said.
The research firm also said they are maintaining their inflation forecast for the country at 5.6 percent average by the end of the year, a tad bit more pessimistic than the 5.4 percent latest forecast of the Central Bank.
“Against the backdrop of the ongoing Russia-Ukraine war and adverse weather conditions in several food-producing countries in the region, energy and food prices will continue to be a significant source of upward price pressure in the Philippines. While we acknowledge the recent decline in oil prices, they remain elevated relative to 2021 levels,” Fitch Solutions said.
Despite slower growth of the country in the second quarter of the year, the think tank said they believe that the Philippines’s economic resilience will also provide more room for the central bank to normalize its monetary policy.
Fitch Solutions expects the economy to grow 6.6 percent on average for 2022.
“While we expect growth will likely slow in the second half of 2022 as a result of rising economic headwinds stemming from a softening global economic outlook, tightening monetary conditions, and elevated energy prices, the 2022 economic performance would still be stronger than the 5.6 percent recorded in 2021,” Fitch Solutions said.
In their August 18 meeting, BSP Governor Felipe M. Medalla said the BSP currently does not have the data yet to make an effective guidance at this point.
“I wish I could tell you ‘this is the last increase.’ I wish I could tell you that even if this is not the last increase, the next one will be the last,” Medalla has said. “But the data and information that is needed to be able to say that is not available at the moment.”
The BSP is expected to have their next scheduled monetary policy review on September 22.