Upbeat Q1 growth builds case for BSP rate hike by next week
THE PHILIPPINE central bank on Thursday welcomed the faster-than-expected economic growth in the first quarter, with some analysts saying this helps build the case for a rate hike as early as next week.
Gross domestic product (GDP) expanded by 8.3% in the January to March period, marking the fourth straight quarter of expansion. The latest print beat the 6.7% median estimate in a BusinessWorld poll.
“[It] beats our own growth expectation. [We] will consider this positive development together with the improving jobs market in our policy meeting next week,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in a Viber message to BusinessWorld.
The Monetary Board will have its next policy meeting on May 19.
Mr. Diokno said in late April that they may consider a rate hike in June, but will first ensure that economic recovery is more entrenched.
“For our part, the BSP stands ready to adjust our monetary policy settings, should we see material risk of these supply-side pressures spilling over to the demand side,” he told reporters in a Viber message.
Headline inflation accelerated to a three-year high of 4.9% in April due to soaring food and energy prices. This is already above the 2-4% target range set by the central bank.
The central bank expects inflation to hit 4.3% this year. If realized, this would mark the second straight year of beyond target inflation after the 4.5% in 2021.
ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the latest economic data comes at a time when the central bank is also facing concerns over rising prices with inflation already beyond target.
“BSP Governor Diokno has been keeping rates unchanged to help support the economic recovery. But with GDP now back to pre-COVID-19 levels and with inflation accelerating, we fully expect BSP to hike policy rates at the May 19 meeting next week,” Mr. Mapa said in a note.
Amid improving growth, economic managers still have to face one of the fastest inflation rates in the Asia-Pacific region, said Sonia Zhu, an analyst at Moody’s Analytics.
“A June rate hike is highly likely as broad-based growth is taking hold. However, with BSP under increasing pressure to arrest rising inflation pressures, we would not be surprised by a rate hike in May,” Ms. Zhu said in a note.
As the Philippines grapples with rising inflation, Fitch Ratings said it expects the BSP to start increasing interest rates in the second half of the year.
The BSP has maintained interest rates at a record low since November 2020 to support the Philippine economy’s recovery from the pandemic.
A rate hike would be the first since 2018, when the central bank increased rates by 175 bps to curb inflation. — Luz Wendy T. Noble