Interest rates could reach 4% by end 2022

Central bank officials strongly hinted of future interest rate hikes in the next four Monetary Board policy meetings to temper an unabated rising inflation, while analysts expect an end-2022 key rate of four percent from the current 3.25 percent, which means another 75 basis points rate hike in the next months.

“We would have new information on inflation and GDP growth and that should help us assess whether there is a need for further adjustments in the monetary policy stance. As we have always emphasized, we remain data dependent and are key data that the Monetary Board will be looking at. Therefore, the Aug. 18 meeting should push through,” said Dakila.

Guinigundo told Manila Bulletin that at the current 3.25 percent policy rate, the BSP will have enough space to adjust higher because as of June 23, the inflation forecast was at five percent for 2022 and 4.2 percent for 2023. For the first six months this year, the actual inflation is at 4.4 percent average. It’s still a negative real rate and it has been for the past 21 months. There is a negative real interest rate when the inflation rate is higher than the central bank rate.

“Despite the jump in June, inflation has probably not peaked yet,” Neri also noted. BPI expects inflation will continue to go up until October. The bank sees an average inflation of five percent to 5.5 percent. “Given this, the BSP may hike again by at least 25 bps in its August policy meeting,” he said.

Dakila, during the press briefing, reiterated that the BSP does not target a particular peso-US dollar rate but will intervene to smoothen exchange rate volatilities any time. The recovering economy amid high inflation which hit 6.1 percent in June, and an exchange rate that already breached P56 vis-à-vis the US dollar, has convinced the Monetary Board to increase the key borrowing rate by 25 bps last May 19 and again on June 23 to curb the buildup of inflation expectations, followed by a more aggressive rate hike of 75 bps on July 14.

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