MANILA, Philippines — The Philippines may join the global rate hike cycle led by the US Federal Reserve as early as June, as the country continues to rebound from the pandemic-induced recession, according to Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno.
In a live interview with Bloomberg Television in New York, Diokno said the BSP may raise its benchmark interest rate in June after keeping it at record lows since November 2020.
“We have another meeting in June. And maybe that’s the time when we will consider the increase in policy rate,” Diokno said.
The BSP chief said the Monetary Board is likely to keep interest rates on hold anew during its next rate-setting meeting scheduled on May 19. The following and fourth meeting of the policy-setting body is on June 23.
After an aggressive 200-basis-points cumulative rate cuts in 2020 as part of its effort to cushion the impact of the pandemic on the economy, the BSP has kept the benchmark interest rate at an all-time low of two percent for the past 17 months or since November 2020 when it delivered the last 25-basis-point rate cut.
The Philippines emerged from the pandemic-induced recession that stretched through five quarters with a gross domestic product (GDP) growth of 5.7 percent last year, reversing the 9.6 percent contraction in 2020.
The International Monetary Fund (IMF) slashed its global growth projections to 3.6 percent from the original target of 4.4 percent for this year and to 3.6 instead of 3.8 percent for next year, based on the April 2022 World Economic Outlook (WEO).
Diokno, who attended last week’s 2022 Spring Meetings of the IMF and World Bank in Washington, noted that the multilateral lender raised its GDP growth forecast for the Philippines to 6.5 instead of 6.3 percent for this year, making it the fastest growing economy among ASEAN-5.
According to the BSP chief, the Philippine economy likely grew between six and seven percent in the first quarter.
Diokno earlier said the BSP is likely to maintain an accommodative monetary policy stance in the first half to allow the economic recovery to gain more traction before starting its normalization process in the second half.
The BSP also said that an increase in the policy rate to a range of 2.50 to 2.75 percent within the year is possible.
Last March 16, the US Fed started lifting rates by a quarter percentage point to 0.5 percent to address the fastest inflation in four decades. This was the first increase since 2018.
Due to rising global oil prices caused by Russia’s invasion of Ukraine, the BSP now expects inflation to average 4.3 instead of 3.7 percent for this year and to 3.6 instead of 3.3 percent next year based on its assessment last March 24.
Inflation averaged 3.6 percent in the first quarter after shooting up to a six-month high of four percent in March from three percent in February.
Diokno earlier said inflation is likely to remain elevated and breach the BSP’s two to four percent target starting the second half before easing back to within the target range by the first quarter of next year.
On the peso, the BSP chief said the local currency is within the 48 to 53 per $1 target set by the Cabinet-level Development Budget Coordination Committee (DBCC).
Since the start of 2022, the peso has weakened by a total of P1.316 or 2.6 percent versus the close of 50.999 to $1 in end- 2021.
“The peso has depreciated at about the same rate or at the middle of the deprecation of the other currencies in the region, so we are not concerned about the depreciation. It is within our target range of 48 to 53,” Diokno said.