Fitch Solutions said on Monday that the Bangko Central NG Bilipinas (BSP) policy rate is likely to peak at 5.75 percent by the middle of next year due to above-target inflation.
The pace of adjustments is expected to slow from last week’s 75 basis point increase, and the central bank’s monetary policy board is expected to reach 2022 with a 50 basis point hike on December 15.
“With inflation expected to drive interest rates higher over the coming months, we now expect interest rates to rise to 5.50 percent by the end of 2022,” Fitch Solutions said in a report.
“We believe that stabilizing global monetary conditions and headwinds to economic growth are likely to cause the pace of increases to slow,” she added.
“As such, we expect the BSP to deliver a smaller 50 basis point hike at its last meeting of the year in December, before raising rates to a high of 5.75 percent in the first half of 2023.”
The latest interest rate hike forecast was said to be in line with the 2022 consensus but slightly higher than the 5.50 percent originally projected for 2023.
Fitch Solutions said inflation would remain above the central bank’s 4.0 percent ceiling through the first half of 2023, “which will pave the way for further rate hikes.”
Taking into account the effects of a second-round rally in global commodity prices this year, “headline inflation will only fall below the 4.0 percent ceiling of the Bills Settlement Payment (BSP) target in [the second half of 2023]. “
Consumer growth is likely to average 5.8 percent in 2022 and remain above the target of 2.0 to 4.0 percent at 5.0 percent in 2023.
“However, we believe that Billings Settlement Payment (BSP) will return to a narrowing pace going forward,” Fitch Solutions said.
According to the BSP, the recent sharp increase in interest rates was intended in part to “insulate the economy from external headwinds and exchange rate volatility.” But since October, the peso has begun to stabilize against the US dollar and has become undervalued on an effective exchange rate basis. Real “.
“Moreover, we believe that the US Federal Reserve will only raise interest rates by an additional 50 basis points by the end of 2022 before keeping them flat throughout 2023. If we are right, there will be less need for BSP births towards the end of 2023,” he added. Fitch Solutions expects significant price hikes to defend the peso in the future.”
“However, we do see upside risks to our US interest rate outlook.”
The Fed, which delivered another massive 75 basis point hike earlier this month, will hold its last meeting of 2022 on December 13-14.