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BSP may start hiking cycle next year

By Jenina P. Ibañez, Senior Reporter 

INVESTOR pressures would likely challenge the Philippine central bank’s accommodative stance next year amid monetary tightening by its counterparts across the globe, Fitch Solutions Country Risk & Research said. 

In a report, Fitch Solutions on Friday said it expects the US Federal Reserve to raise key interest rates by 50 basis points next year, potentially putting pressure on the Philippines to follow suit. 

“This will put upward pressure on market expectations for hikes in emerging markets, particularly amongst those which have yet to begin their hiking cycle, such as the Philippines,” it said. 

The research body kept its forecast that the Bangko Sentral ng Pilipinas (BSP) would start monetary tightening next year. It expects the policy rate to rise to 2.75% by the end of 2022. 

The BSP kept it key rates at record lows on Thursday. 

Central bank Governor Benjamin E. Diokno cited manageable inflation and noted risks to the country’s economy after the emergence of the Omicron coronavirus variant. He said keeping monetary support would help sustain the economic momentum in the next quarters. 

“The Monetary Board continued to flag upside risks to the near-term inflation outlook due to supply-side price pressures, namely bottlenecks and high commodity prices,” Fitch Solutions said. “However, the board also noted downside risks to the economy given the emergence of the Omicron variant.” 

“The board struck an accommodative tone, reiterating its desire to support the economic recovery, while also watching for potential inflationary surprises over the coming quarters,” it added. 

It expects economic recovery and growing market pressure to prompt the start of a hiking cycle gradually through 2022. 

“The market-implied policy rate path for the Philippines suggests 100bps in hikes over the next six months and 160bps within a year, significantly more hawkish than Bloomberg consensus expectations for the policy rate to stand around 2.3% by end-2022,” according to the report. 

“Our forecast for 75bps stands somewhat midway and reflects our view that the BSP will seek to normalize monetary conditions as economic activity normalizes,” it added. 

The accommodative position would come under investor pressure if the central bank falls behind the curve on monetary tightening, it said. 

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