THE Bangko Sentral ng Pilipinas (BSP) could raise interest rates twice this year to keep inflation under control after opting to keep policy settings unchanged last week at an off-cycle meeting, Metrobank Research said.
The central bank last Thursday left the target reverse repurchase (RRP) rate at 4.25 percent and said a pause was most appropriate despite projections that inflation could breach the 2.0- to 4.0-percent target this year.
BSP Governor Eli Remolona Jr. also noted that monetary policy would be ineffective against the current surge in oil prices and warned that a rate hike could derail the country’s growth prospects.
Still, Metrobank expects the BSP to deliver two 25-basis-point rate hikes this year, which would bring the policy rate to 4.75 percent by end-2026, as risks to inflation remain tilted to the upside.
The bank said global price pressures, particularly higher oil costs, were likely to feed into domestic prices, pushing up food and services costs and accelerating overall inflation.
“Although the Philippine government is taking measures to soften the impact of higher global oil prices, the magnitude of the increases is still expected to cause an acceleration in overall inflation through higher domestic prices and, ultimately, higher food and services costs,” it said.
Metrobank forecasts full-year inflation of 5.3 percent, higher than the central bank’s latest projection of 5.1 percent. Inflation is expected to ease and return within the target range by 2027, with the bank projecting a 3.0-percent average for that year.
Despite expectations of above-target inflation, Metrobank said the first policy rate hike was unlikely to be delivered at the BSP’s next meeting in April as tightening too early could further dampen already weak growth prospects.
The bank instead expects the BSP to begin raising rates as early as June, noting that a projected second-semester fiscal rebound could offset the negative impact of a less accommodative monetary policy environment on economic growth.
“We expect the BSP to remain data driven,” Metrobank said.
“Rate hikes are still possible in the future should inflation expectations become de-anchored, or if people believe high inflation will continue,” it added.
Lower inflation in 2027, meanwhile, will give the BSP room to reverse its tightening cycle, Metrobank said. It expects two 25-basis-point rate cuts next year, which will bring the policy rate back to 4.25 percent, particularly as growth prospects improve.
