Standard Chartered Bank led by bankero Lynette Ortiz expects the Bangko Sentral ng Pilipinas (BSP) to jack up interest rates by 25 basis points on Thursday.
Jonathan Koh, economist for Asia and the Philippines at Standard Chartered Bank, said the interest rate liftoff on May 19 would bring the overnight borrowing rate to 2.25 percent from the current all-time low of two percent.
“The economy recovered strongly in Q1 to back above pre-pandemic levels and the recovery was broad-based as well. The labor market has also continued to improve, with the unemployment rate falling to 5.8 percent in March, the lowest since the start of the pandemic. This should support private consumption going forward,” Koh said.
The economist was referring to the faster-than-anticipated gross domestic product (GDP) growth of 8.3 percent in the first quarter of the year, reversing the 3.8 percent contraction in the same quarter last year and stronger than the 7.8 percent expansion booked in the fourth quarter.
“A narrowing of the negative output gap (we expect it to turn positive in Q4) and less slack in the labor market may allow the pass-through of higher costs to consumers and a broadening of inflationary pressures,” Koh added.
Inflation shot up to 4.9 percent in April, exceeding the central bank’s two to four percent target, from four percent in March due to elevated fuel and food prices.
“We expect BSP to begin policy normalization in May to arrest potential second-round inflationary effects,” Koh said.