WebClick Tracer

April 19, 2024

Moody’s Analytics sees BSP lifting interest rates next week

The Bangko Sentral ng Pilipinas (BSP) is seen hiking interest rates next week after the country booked an extraordinary economic expansion in the first quarter of the year, according to Moody’s Analytics.

Sonia Zhu, associate economist at Moody’s Analytics, said that the Philippines is facing one of the fastest inflation rates in the Asia-Pacific region as the consumer price index (CPI) shot up to 4.9 percent in April, breaching the BSP’s two to four percent target range, from four percent in March due to soaring global oil and non-oil prices.

Zhu pointed out that higher prices for food and fuel are challenging the central bank’s accommodative monetary policy settings.

The economist also cited the faster-than-anticipated gross domestic product (GDP) growth of 8.3 percent in the first quarter of the year from 7.8 percent in the fourth quarter of last year shows that the rebound from the pandemic-induced recession is sustainable.

“A June rate hike is highly likely as broad-based growth is taking hold. However, with BSP under increasing pressure to arrest rising inflation pressures, we would not be surprised by a rate hike in May,” Zhu added.

The BSP Monetary Board is set to hold its third rate-setting meeting for the year on May 19.

The central bank has kept an accommodative monetary policy stance by keeping interest rates at record lows after the aggressive 200 basis points rate cuts in 2020 as part of its pandemic-response measures.

The benchmark rate has been kept at an all-time low of two percent since the surprise 25 basis points rate cut in November 2020 and has helped boost economic activity.

According to Moody’s Analytics, the target penned by economic managers are within reach after the stronger-than-expected expansion from January to March this year.

“Extraordinary first-quarter economic growth has the Philippines on track to meet the government’s seven to nine percent GDP growth target,” Zhu said.