MANILA - The Bangko Sentral ng Pilipinas is seen to continue hiking the country's key policy rate in the first half of 2023 due to the elevated inflation, Fitch Solutions said on Monday.
In a statement, Fitch Solutions said it expects the central bank to implement a 50 basis points hike in its next meeting in May, following a 50 bps hike last Feb. 16.
Fitch Solutions said interest rates in the Philippines could peak at 6.50 percent this year, higher than its initial estimate of 6 percent.
The country's benchmark interest rate, used by banks to price loans, is now at 6 percent. It was raised by a cumulative 400 bps since last year.
"The latest decisions were mainly driven by concerns over persistently high inflation, and we think that the BSP's tightening will continue into H123 to tame inflationary pressures," Fitch Solutions said.
"Beyond that however, a stabilization in global monetary conditions and headwinds to economic growth will give the BSP enough reason to leave rates on hold throughout the remainder of 2023," it added.
Inflation hit a fresh 14-year high in January 2023 to 8.7 percent, beating expectations. January's consumer price index is also more than double the government's 2 to 4 percent target range. This was due to higher housing, water and power costs as well as the continued increase in select food prices including vegetables.
Risks to the policy rate forecast include the larger-than-expected rate hikes by the US Federal Reserve which could exacerbate peso volatility and if inflation remains "stubbornly high," the group said.
Fitch Solutions said it has also raised its inflation forecast for the year to 6.5 percent from its initial estimate of 5.4 percent. It expects inflation to remain above target for the entire 2023.
The BSP also earlier revised its inflation forecast for 2023 to 6.1 percent from its initial outlook of 4.3 percent.
In terms of economic growth, Fitch Solutions said it expects the gross domestic product (GDP) to expand by 5.9 percent this year compared to the 7.6 percent recorded in 2022.