Fitch Solutions sees inflation easing, BSP keeping rates through 2nd half of 2022

ABS-CBN News

Posted at Jun 28 2021 04:41 PM

Fitch Solutions sees inflation easing, BSP keeping rates through 2nd half of 2022 1
People buying groceries. Fernando G. Sepe Jr. ABS-CBN News file photo

MANILA - Fitch Solutions on Monday said it expects Philippine inflation to fall back within the BSP’s 2 to 4 percent target range "over the coming quarters," and the Bangko Sentral ng Pilipinas to keep its policy rate on hold through the second half of 2022.

Fitch Solutions forecasts headline inflation to average 4 percent this year and 3.4 percent in 2022. 

It noted that the headline inflation rate remained flat for the third consecutive month in May at 4.5 percent, but said it expects prices to moderate over the coming quarters.

“Food price inflation will also prove temporary as the effects of the African Swine Fever outbreak on pork prices recede over the coming quarters,” it said. 

Fitch Solutions said it expects supply-chain disruptions to ease more substantially in 2022 as the Philippines gradually loosens border and mobility restrictions on the back of rising vaccination rates.

The global analytics firm also said that despite inflation remaining above the BSP’s target range since January, the country's continuing challenges with the pandemic and uncertain path to economic recovery "means that an accommodative monetary policy stance remains important to providing a supportive backdrop." 

The BSP “will maintain accommodative monetary conditions until loan growth and domestic economic activity are on a sustained recovery and pandemic uncertainties have significantly abated,” Fitch Solutions said.

This is not expected to be achieved until the second half of 2022, Fitch Solutions said.

“As such, we at Fitch Solutions believe the BSP will only begin to hike once the Philippine economy is on a sustained economic recovery and domestic demand-side price pressures become stronger,” Fitch said. 

“Accordingly, we forecast 50 bps of key policy rate hikes by end-2022.”
 
The central bank kept its overnight reverse repurchase rate at a record low 2 percent in its meeting last week. The key rate has been kept steady since December last year to stimulate an economy battered by the COVID-19 pandemic. 

Last month, Fitch Solutions lowered its economic growth forecasts for the Philippines for this year and next year noting that the country is having difficulty checking the COVID-19 outbreak, and is struggling to vaccinate its citizens. 

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