MANILA - Inflation staying at an elevated level for an extended period could force the hand of the central bank to aggressively tighten interest rates instead of making gradual hikes, economists said Thursday.
This was after inflation quickened to 4.9 percent in April from 4 percent in March, breaching the government target of 2 to 4 percent.
The Bangko Sentral ng Pilipinas has kept the benchmark borrowing rate at 2 percent despite rising inflation to support the country's economic recovery.
BSP Governor Benjamin Diokno said the normalization of policies could begin in June. But it could be seen as a delayed reaction based on current inflation numbers, ING Bank Senior Economist Nicholas Mapa said in an interview with ANC.
"When we fall behind the curve, I think this is when the BSP is in increasing danger of having to react or overreact with ultra-aggressive rate hike when they could have done a graduated string of rate hikes...They may have to slam on the breaks, tighten aggressively, which the Fed is doing now," Mapa said.
The US Federal Reserve on Wednesday implemented its biggest rate hike since 2000 to arrest inflation.
"We have faster growth, we have faster inflation so I think it’s about time the BSP consider a rate hike because I feel that they’ve delayed the rate hikes, they’re behind the curve now," he added.
Inflation is seen to remain elevated in the near and medium-term, Mapa said. It could even hit a high of 5.5 percent in June, he added.
Russia's invasion of Ukraine, which has an impact on oil and other global commodities, as well as the local supply-side risks could push inflation up this year and the next, he said.
Mapa said they're projecting a 100-basis point hike by the end of the year, which would put the country's key borrowing rate to 3 percent from 2 percent.
Band aid solutions for the demand and supply-side pressures are also no longer enough to temper the rising food prices, which have the largest contribution to the inflation basket, Mapa said.
The Philippines has cut tariffs for select food items to augment supply as well as released subsidies for drivers and farmers affected by the rising oil prices but a more solid reform is needed to increase productivity.
Agriculture remains "neglected," he said.
"I think that’s something [agriculture] the next administration needs to address. If you want to hit inflation in the head," Mapa said.