BSP widely seen raising interest rates until 2023

Economists expect the Bangko Sentral ng Pilipinas (BSP) to extend the tightening cycle by hiking interest rates until next year to address soaring inflation.

Aris Dacanay, economist for ASEAN at British banking giant HSBC, said in a commentary that the BSP may raise interest rates by another 100 basis points this year and another 50 basis points next year.

“The BSP will likely have to hold its ground and keep on hiking to prevent inflationary expectations from being disanchored,” Dacanay said.

The BSP has so far raised interest rates by 125 basis points since it started its liftoff last May to curb rising inflationary pressures.

Including the back-to-back 25-basis-point increases in May and June as well as the huge 75-basis-point hike during a surprise off-cycle rate-setting meeting last July 14, the benchmark interest rate now stands at 3.25 percent from an all-time low of two percent.

Dacanay said HSBC sees the BSP raising interest rates by 25 basis points in the remaining four rate-setting meetings for the rest of the year, bringing the overnight reverse repurchase rate to 4.25 percent by the end of 2022.

For 2023, the British banking giant sees the BSP hiking rates by another 50 basis points in the first quarter before pausing for the remainder of the year at 4.75 percent.

HSBC raised its inflation forecast to 5.3 percent this year, but retained next year’s projection at 3.7 percent.

Inflation averaged 4.7 percent in the first seven months, staying above the BSP’s two to four percent target range, after accelerating to 6.4 percent in July from 6.1 percent in June.

“In most cases, month-on-month inflation needs to peak first before year-on-year inflation peaks. Year-on-year inflation can peak at the same time as its month-on-month counterpart, but the latter will need to drop by a considerable