BSP foresees High Inflation following survey of Private Sector

The Bangko Sentral ng Pilipinas (BSP) will raise the country’s policy rates by 75 basis points (bps) in the second semester of 2022.

According to BSP Governor, Benjamin Diokno, the decision was made as he notes that high inflation is “back with a vengeance.” However, he also acknowledged that price growth in the Philippines is “more manageable” as compared to some other countries.

Diokno stated that the average forecast from private-sector observers placed inflation at 3.8%.

“We expect a combination of rising inflationary pressures, continued economic recovery, and rising interest rates around the world to prompt the BSP to tighten its monetary policy over the coming months,” said financial analytics company, Fitch Solutions.

According to Fitch Solutions’ reports, the BSP stated that it “stands ready to respond to the buildup in inflation pressures that can disanchor inflation expectations.”

“We at Fitch Solutions maintain our forecast for the BSP to hike its policy rate by 75 bps to 2.75 percent by end-2022, which puts us above Bloomberg consensus of 2.45 percent,” they added.

Following these reports and analyses, the company adjusted its forecast for average Philippine inflation to about 4.5% from the initial 3.7%.

Last Sunday, Diokno reiterated that “inflation expectations remained anchored” to the target. “Based on the BSP’s survey of private-sector economists, the respondents expect inflation to settle within the government’s target range in 2022, with risks to inflation outlook tilted to the upside,” the BSP chief said.

“The results showed that the mean inflation forecast for full-year 2022 would rise from 3.5 percent (February survey) to 3.8 percent (March survey),” he added.

With the country’s continued economic recovery, Fitch Solutions claims that this should provide the BSP with more leeway to normalize its monetary policy.
“We note that major central banks in the United States, the United Kingdom, and European Union are turning increasingly hawkish,” the company said.

“Should the BSP stand pat as the rest of the central banks tighten monetary policy, a narrowing of real interest rate differentials could lead to hot money outflows and downside volatility for the peso, particularly given weakening risk sentiment globally.”

Source: Inquirer