'Too low for too long': Analyst backs interest rate hike in May

ABS-CBN News

Posted at May 13 2022 11:33 AM | Updated as of May 13 2022 11:47 AM

A customer (L) counts Philippine peso bills to pay at a fuel station in Quezon City, Metro Manila, Philippines, 08 March 2022. Rolex Dela Pena, EPA-EFE
A customer (L) counts Philippine peso bills to pay at a fuel station in Quezon City, Metro Manila, Philippines, 08 March 2022. Rolex Dela Pena, EPA-EFE

MANILA - It would be "wise" for the Bangko Sentral ng Pilipinas to implement an interest rate hike in May since the change in government won't take place until June, Bank of the Philippine Islands lead economist Jun Neri said Friday.

The country's benchmark borrowing rate has been kept to its record low of 2 percent since November 2020 to support economic recovery.

BSP Governor Benjamin Diokno has said monetary policy normalization could begin in June. The new administration that won the 2022 polls will take over the government after President Rodrigo Duterte steps down on June 30.

But in an interview with ANC, Neri said the hike has already been delayed given the escalating inflation numbers and the early signs of recovery, which the BSP intends to support.

"If we see any sign of recovery it should be recalibrated and then in 2021, when we exceed the inflation target…maybe a 25-basis point, 50-basis point adjustment was already necessary because a long period of negative interest rates will have its own side effects and we’ve already felt it," Neri said.

"Policy rates are kept too low for too long following the mindset of the Federal Reserve which turned out to be quite mistaken. We think it’s a little bit late already. There’s still time to start and as early as the May 19 meeting, we recommend that there’d be a hike already," he added.

For the year, Neri said interest rate could hike by 75-basis points in total.

In terms of the gross domestic product (GDP) growth, which hit 8.3 percent in the first quarter, Neri said it could be because consumers have continued adjusting to the pandemic.

For the second quarter, he said GDP could grow to as much as 9.5 percent to reflect election spending.

For the full year, BPI expects the economy to expand by 7.3 percent, within the government target of 7 to 9 percent.

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