BSP seen to hike rates by 25 BPS

MANILA, Philippines — Malaysian banking giant Maybank expects the Bangko Sentral ng Pilipinas (BSP) to deliver another 25-basis-point rate hike before the end of the first half as inflation may remain above the government’s target range.

During a media briefing on its Market and Economic Outlook 2023 organized by Maybank Securities Philippines, Maybank Investment Banking Group economist Zamros Dzulkafli said the benchmark interest rate is likely to settle at 6.50 percent after the central bank’s tightening cycle.

Dzulkafli said the BSP is likely to keep interest rates on hold for the rest of the year.

“Amidst a global economic slowdown and geopolitical tensions, another headwind to watch is extreme weather patterns that will disrupt agro-food industry production/supplies and elevate prices,” Dzulkafli said.

The BSP has so far hiked key policy rates by 425 basis points since it started its interest rate liftoff in May last year to tame inflation and stabilize the peso. This brought the overnight reverse repurchase rate to a 16-year high of 6.25 percent from an all-time low of two percent.

The tightening cycle helped cool inflation to a six-month low of 7.6 percent in March from 8.6 percent in February, still above the BSP’s two to four percent target range.

Dzulkafli said Maybank sees inflation slightly accelerating to 5.9 percent this year before easing to three percent next year from 5.8 percent in 2022.

The bank believes that inflation already peaked at 8.7 percent in January and is expected to ease gradually to reach the BSP target range in the fourth quarter.

Maybank sees the country’s gross domestic product (GDP) growth slowing down to 5.5 percent this year before picking up to 6.2 percent next year.

After exiting the pandemic-induced recession with a GDP expansion of 5.7 percent in 2021, the Philippines managed to sustain the strong rebound as the GDP growth accelerated to 7.6 percent last year.

The country slipped into recession with a contraction of 9.5 percent in 2020 as the economy stalled due to strict COVID quarantine and lockdown protocols.

Dzulkafli said the Philippines is a demand-driven economy, with private consumption accounting for a 75.9 percent share of GDP in 2022, the largest among key ASEAN countries.

“Hence, stable labor market conditions, resilient overseas Filipino worker remittances and manageable inflation will be tailwinds to support growth,” he said.

According to Dzulkafli, the services sector and employment in particular will be boosted by tourism recovery especially with tourists from China.

In February, the number of tourists from China reached 14,903, the highest since February 2020. In total, tourist arrivals were steady at 464,522 in February 2023, despite the shorter month, compared to January at 464,168.