MANILA - The Bangko Sentral ng Pilipinas will keep its benchmark rate steady this year but is likely to hike rates by 75 basis points next year, Fitch Solutions said on Monday.

The analytics firm said that the central bank was not likely to hike rates this year, with the country still in the process of relaxing domestic COVID-19 restrictions and normalizing its economy.

“As such, we believe the BSP will take a gradual approach to monetary policy normalization. We at Fitch Solutions forecast the BSP to begin its hiking cycle in 2022, forecasting the policy rate to rise from 2.00 percent as of end-2021 to 2.75 percent by end-2022,” Fitch Solutions said.

The BSP kept its overnight reverse repurchase rate at 2 percent in its last policy-setting meeting, leaving the benchmark at a record low for a full year to support economic growth.

This was despite inflation staying above the government’s target for the whole year.

BSP Governor Benjamin Diokno has said that “the harm from early monetary tightening exceeds the harm of moving too late, given the nascent state of economic recovery."

Fitch Solutions said that the low interest rate “could weigh on the peso” as the dollar strengthens and other central banks tighten monetary policy.

The company noted that the BSP’s decision “leaves the real policy rate deeply negative, at -2.6 percent,” with the benchmark rate lower than inflation rate.

Meanwhile, Fitch said signs of economic recovery are growing, with mobility data and the Purchasing Managers’ Index showing an expansion in activity in October.

“We continue to watch the reopening of the Philippine economy and the COVID-19 situation, which has the potential to delay the economic recovery again.”

• BSP keeps benchmark rate steady at record low 2 percent
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