First interest rate hike by Bangko Sentral likely in June 2022: BPI economist

Warren De Guzman, ABS-CBN News

Posted at Nov 16 2021 04:56 PM

MANILA - The Bangko Sentral ng Pilipinas is unlikely to hike interest rates in its monetary policy meeting on Nov. 18, BPI lead economist Jun Neri said Tuesday.

The start of tightening monetary policy could be in June next year, Neri said in a forum. 

He noted that historically, no rate hikes are implemented in the first 5 months of an election year.

“We think it's a dead giveaway. Rhetoric has remained dovish despite all the indications of the persistent rise of global inflation. With elections fast approaching, the first hike might be in June. No rate hikes were seen in first 5 months of (previous) Presidential election year(s)," Neri said.

However, holding off on adjusting monetary policy will affect the country's gross international reserves.

“Is it worth draining or depleting our reserves in case something like that happens in the US, versus hiking by 25 basis points?" Neri asked.

BSP Governor Benjamin Diokno has consistently expressed the intent to keep current settings in place for as long as possible to support economic recovery.

But Neri said the costs of keeping interest rates at a record low of 2 percent are piling up. The rate has been maintained at the current level for almost a year.

Keeping rates low has side effects on economic growth, he said. 

Neri said low yields on safer investment instruments such as bonds have contributed to artificially inflated prices of riskier assets such as equities and even cryptocurrencies. 

Cheap debt helped divert precious resources to "zombie" corporations or companies that are only able to stay afloat through the use of cheap loans. 

It has also kept demand for real estate properties elevated, pricing out the unemployed and low-income earners, he added.

The BSP may also be forced to act depending on the decision of the US Federal Reserve, he said.

The BSP has 2 remaining monetary policy meetings for the year. 

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