Philippines’ key rate to rise to 4% this quarter, survey shows

Published Tue, Aug 16, 2022 · 12:29 PM

THE Philippine central bank will sustain its rate-hike cycle this quarter, following a surprise move in July, to quell broadening price pressures, according to Bloomberg survey of economists.

The benchmark interest rate is expected to increase by another 75 basis points to 4 per cent by the end of September, a survey showed. Bangko Sentral ng Pilipinas (BSP) is seen to pause in October-December, before raising borrowing costs by half-a-point in the first quarter of 2023, based on the latest estimates.

“We think the BSP will continue with a measured policy tightening given its task to ensure that inflationary expectations are well-anchored,” said Domini Velasquez, chief economist at Manila-based China Banking. Knock-on effects from supply shocks will keep inflation elevated through the first half of 2023.

Most economists expect the central bank to increase its overnight borrowing rate by 50 basis points to 3.75 per cent on Aug 18, according to a separate survey as of Tuesday (Aug 16). Policymakers are scheduled to meet again on the key rate on Sep 22.

Price gains for the third and fourth quarters are seen to exceed 6 per cent, compared with the 5 per cent prior outlook. Inflation is expected to average at 5.1 per cent this year from a previous estimate of 4.4 per cent while the full-year forecast for 2023 also moved higher to 3.9 per cent from a prior 3.4 per cent.

Economists revised up the outlook on gross domestic product growth this year by 0.2 percentage points to 6.8 per cent but trimmed next year’s forecast by 0.4 percentage points to 5.8 per cent.

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Output expanded by less than estimated last quarter as the fastest inflation in almost 4 years hurt consumption, a key economic driver. Still, the Philippines stands out as among Asia’s fastest-growing economies, with the government expecting at least a 6.5 per cent annual expansion through 2028.

“Consumer demand will likely soften starting the second half due to the meaningful loss in purchasing power because of high inflation,” said Alvin Arogo, head economist at Philippine National Bank. He also said “re-opening tailwinds will be minimal” in 2023. BLOOMBERG

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