MANILA - The Bangko Sentral ng Pilipinas may hike its key policy rate to 3.25 percent by the end of the year, Fitch Solutions said Monday, after revising its forecast higher due to "mounting inflationary pressures."

The new estimate is higher than the previous forecast of 2.75 percent, after the central bank hiked interest rate by 25-basis point during its monetary policy meeting last June 23, Fitch Solutions said in a statement.

The BSP on Thursday raised the benchmark borrowing rate to 2.5 percent from 2.25 as inflation continued to accelerate.

Inflation quickened to 5.4 percent in May, above the 2 to 4 percent target rate and is seen to remain elevated this year.

"We at Fitch Solutions now expect the Bangko Sentral ng Pilipinas to hike its policy rate to 3.25 percent by end-2022, up from our previous forecast of 2.75 percent," it said.

"Over the coming months, mounting inflationary pressure and rising global interest rates will prompt the BSP to adopt a more hawkish stance in our view," it added.

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Inflation estimates by the central bank were also revised upwards to 4.6 percent average from the earlier forecast of 4.2 percent for 2022. It is also seen to settle at 4.2 percent in 2023 from the earlier estimate of 3.9 percent, the BSP said.

Revisions were attributed by the central bank to the continued acceleration of world crude oil and other global commodity prices, the war in Ukraine, the slowdown and supply disruptions in China as well as the tightening of interest rate in developed economies such as the US.

Fitch said the supply side and rising commodity prices also led to its revised inflation forecast to 5 percent from 4.5 percent for the year.

"Over the coming months, we expect inflation to remain elevated relative to historical levels owing to high energy and grains prices as well as a weaker Philippine peso exchange rate, which will drive imported inflation," Fitch Solutions said.

The peso weakened to near P55 to $1, closing at P54.985 against the dollar Friday.

But Fitch Solutions added that the robust economic recovery, as seen in the first quarter gross domestic product growth (GDP), would give the BSP "more leeway to normalize its monetary policy."

The Philippine economy grew faster-than-anticipated at 8.3 percent in the first quarter of 2022.

Fitch Solutions said it expects the economy to grew 6.1 percent for the year.

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