The Bangko Sentral ng Pilipinas (BSP) is likely to keep its key interest rates unchanged for the rest of the year, looking past higher-than-expected inflation rate to focus on oiling the coronavirus (COVID-19)-ravaged economy.
This was according to London-based think tank Fitch Solutions, which expected the BSP to resume its monetary tightening cycle in 2022 as the economic recovery gathers steam, taking the key policy rate to 2.75 percent by the end of next year from 2 percent at present.
Fitch Solutions was originally projecting a modest 25-basis-point interest rate increase this year, but changed its view as the domestic economy grapples with the return to tighter lockdown measures as COVID-19 cases surged in March.
We expect the BSP to look past elevated inflation and instead focus on a sustained recovery in demand-side price pressures and credit growth, Fitch Solutions said in a recent research note. During its March 25 monetary policy meeting, the BSPs Monetary Board kept the benchmark rates unchanged even as it acknowledged that upward inflationary pressures were likely to stay in place over the coming months due to supply side disruptions caused by the coronavirus outbreak.
A combination of rising pork prices due to African swine fever and supply-chain disruptions from the pandemic led to a surge in headline inflation, alongside external factors such as rising commodity prices. In February, year-on-year inflation hit 4.7 percent, overshooting the BSPs inflation target of 2-4 percent. Fitch Solutions said it expected inflationary pressures to remain in the near term, driven by supply-side factors. It projected inflation to average at 4 percent through 2021 and ease to 3.4 percent in 2022.