Early interest rate hike seen to anchor inflation expectation: economist

Jessica Fenol and Raine Musngi, ABS-CBN News

Posted at Mar 24 2022 11:12 AM | Updated as of Mar 24 2022 03:31 PM

MANILA - An earlier-than-anticipated rate hike in May could help the central bank anchor inflation expectations and prevent a more aggressive policy adjustment in the second half of 2022, an economist said Thursday.

ING Bank Manila's Senior Economist Nicholas Mapa is expecting the Bangko Sentral ng Pilipinas (BSP) to raise interest rate during its monetary meeting in May, ahead of other analysts' forecast of a rate hike in the second half of the year.

"If you just follow the data, we are expecting a 25-basis point rate hike for May or June," Mapa told ANC. 

"When you lose the ability to get a good grasp or grip on inflation expectations, a response required to re-anchor those inflation expectations are much more aggressive than a simple token reflex," he added.

An aggressive monetary policy adjustment means up to 100-basis point hike in the second half of the year, he said

Interest rate has been maintained at 2 percent for the entire 2021 as the BSP kept its "laser-focus" on supporting the rebound of the pandemic-hit economy.

After crash-landing in 2020 due to the COVID-19 pandemic, the economy emerged from recession in 2021 by slightly overshooting growth targets with a gross domestic product (GDP) growth of 5.6 percent.

Mapa said analysts are expecting a decent GDP growth number in the first quarter of 2022.

"Right now, after safeguarding the recovery, all these months of accommodation, with the recovery in hand, it's time to start focusing on its primary mandate which is price stability," he said.

"So it's good to focus on growth as well but they also must adhere to their own primary mandate which is price stability," he said.

BSP Governor Benjamin Diokno earlier said in an internal "sensitivity analysis" showed that the tension between Russia and Ukraine could push inflation to as high as 4.7 percent this year if the Dubai crude averages at $140 per barrel.

So far, Dubai crude is hovering around $110 per barrel in March. 

Diokno said inflation, which settled at 3 percent in January and February or within the 2 to 4 percent target range, could rise in the coming months as the impact of the continued global crisis spills over to other markets worldwide. 

The BSP will hold its monetary policy-setting meeting on Thursday afternoon. 


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