Philippine growth within target this year – Citi

MANILA, Philippines — Global banking giant Citi sees the Philippines achieving its economic growth target for this year, albeit at a slower pace, as the Bangko Sentral ng Pilipinas (BSP) is expected to further hike interest rates to tame inflation.

In a virtual press conference, Citi Philippines economist Nalin Chutchotitham said the Philippine economy may expand by 6.2 percent this year, slower compared to last year’s 7.6 percent expansion.

Despite the slowdown, the figure  is still well within the six to seven percent growth target penned by economic managers through the Cabinet-level Development Budget Coordination Committee (DBCC).

“We do expect some slowdown in growth this year, coming down to probably about 6.2 percent, slower than last year’s very strong growth of 7.6 percent given higher financing costs and also some expectations of global slowdown as well,” Chutchotitham said.

Citi sees the BSP raising key policy rates by another 50 basis points, bringing the overnight reverse repurchase rate to six percent in the first half.

To tame inflation that accelerated to a 14-year high of 8.1 percent in December from eight percent in November, the central bank hiked interest rates by 350 basis points, bringing the benchmark rate to a 14-year high of 5.50 percent from an all-time low of two percent.

“Inflation remains a key concern for the medium term, thus we expect the BSP to remain hawkish and hike the policy rate by 50 basis points to six percent in the first half of  2023,” Chutchotitham said.

For the second half, Chutchotitham said  the central bank is likely to pause and maintain the high interest rate environment to anchor inflation expectations.

“So we do expect that to be maintained for quite some time. Although at the end of next year, we’re expecting some policy rate declines as inflation is also expected to return to target next year,” Chutchotitham said.

Inflation accelerated to 5.8 percent last year, well above the BSP’s two to four percent target range, from 3.9 percent in 2021.

Citi sees inflation returning within the central bank’s target range by the fourth quarter   and further to 3.3 percent in 2024.

Joanna Chua, head of Asia Economics and Strategy at Citi, said the bank also forecasts that Asia’s tightening cycle is coming to an end for most but could stay tight for longer.

“Despite these positive signs, we expect the global economy to have a tough year ahead given the lagged impact of tighter monetary and fiscal policies for most,” Chua said.

According to Chua, Citi has seen a dynamic transition in the global economy.

“China has abandoned its zero-COVID strategy much faster than anticipated. The euro area has enjoyed warmer than expected winter, which helped manage ongoing energy shock, and recent US data has shown lower inflation against resilient, albeit slowing economic activity,” Chua said.

Citi Philippines markets head and country treasurer Paul Favila said  the aggressive rate hikes delivered by the BSP   helped tame inflation and stabilize the peso that slumped to an all-time low of 59 to $1 in October last year.

“The quick and decisive action taken by our central bank has proven to be beneficial to the local markets.  As evidenced by the stronger currency and flattening of the yield curve, the markets are taking comfort that the trajectory ahead is one of more stability and clarity,” Favila said.

Favila added that Citi is focused on optimizing its capital while also shifting toward higher margin activities.