Jessica Fenol, ABS-CBN News

Posted at Dec 17 2021 01:34 PM

MANILA— The Bangko Sentral ng Pilipinas could begin gradually tightening monetary policy in 2022 by bringing the interest rate to 2.75 by the end of next year, Fitch Solutions said Friday.

In a statement, Fitch Solutions said it expects 75-basis point hikes next year. 

The BSP has kept the country's benchmark interest rate at 2 percent for the entire year to support economic recovery.

"We at Fitch Solutions maintain our view that the Bangko Sentral ng Pilipinas will only gradually tighten monetary policy through 2022, as it looks to the economic recovery for guidance," it said in a statement. 

"As such, we forecast 75bps of hikes to the key policy rate in 2022, taking it to 2.75 percent by yearend," it added.

Market pressure due to elevated inflation is also anticipated, the company said. 

Inflation has been hovering still above the government target of 2 to 4 percent. 

On Thursday, the Monetary Board raised the inflation forecast to 4.4 percent for 2021, from the previous forecast of 4.3 percent. For 2022, it was revised to 3.4 percent from 3.3 percent. 

The inflation forecast for 2023 was maintained at 3.2 percent. 

Fitch Solutions said it expects the headline inflation rate to ease to 4.4 percent in 2021, in line with the central bank's forecast. Inflation could settle at 3.6 percent in 2022, falling back within target, it said.

"We also believe recovering demand-side price pressures will prompt the BSP to begin monetary tightening to curb inflation," Fitch Solutions said. 

Other central banks have started to tighten monetary policies to arrest rising inflation.

US Federal Reserve Chair Jerome Powell on Wednesday signaled that the Fed might implement several rate hikes in 2022 to fight inflation.

Bangko Sentral ng Pilipinas maintains interest rate at 2 pct as economy sits on 'firmer ground'

San Juan City residents line up to receive their second tranche of financial aid under the social amelioration program through ATM machines on September 10, 2020. Mark Demayo, ABS-CBN New/File

The Bangko Sentral ng Pilipinas on Thursday said the Monetary Board has decided to keep interest rate at its record low of 2 percent. 

The central bank has kept the benchmark borrowing rate at its current level for a year to support economic recovery despite the threat of rising inflation.

Although inflation hovered above the government target of 2 to 4 percent, it recorded a 4-month low of 4.2 percent in November, data showed.

The Monetary Board on Thursday also revised upwards its inflation outlook for 2021 and 2022.

The BSP said its inflation forecast was raised to 4.4 percent for 2021, from the previous forecast of 4.3 percent. For 2022, it was revised to 3.4 percent from 3.3 percent. 

Meanwhile, the 2023 inflation forecast was maintained at 3.2 percent. 

BSP Governor Benjamin Diokno earlier said inflation could settle back within the target by 2022. The BSP kept the target range of 2 to 4 percent until 2024.

"The projected inflation path remains within the inflation target band of 2-4 percent over the policy horizon. Average inflation is seen to settle close to the midpoint of the target range in 2023. Inflation expectations also continue to be anchored to the target level," he said.

Diokno said the emergence of the new COVID-19 omicron variant "continues to pose downside risks to the outlook for growth and inflation."

"Nonetheless, the Monetary Board observed that economic growth now appears to be on firmer ground, supported by the Government’s accelerated vaccination program and calibrated relaxation of quarantine protocols," he added.

The Philippines, which has recorded more than 2.83 million COVID-19 cases, has fully vaccinated more than half of its high-end target of 77.1 million people. 

Some central banks around the world have started to tighten monetary policies to arrest inflation. But Diokno said the Philippines' current policy remains adequate.

The country also has hefty dollar reserves to cushion the impact of any action by the US Federal Reserve, the BSP earlier said.

Any Fed action is also incorporated into the projected inflation path, Deputy Governor Francisco Dakila said during Thursday's briefing.

The US Fed might implement 3 rate hikes in 2022 to fight inflation, Fed Chair Jerome Powell signaled on Wednesday.