PNB economist: BSP may hike key rates by total 75 basis pts

THE Bangko Sentral ng Pilipinas (BSP) may raise the key interest rate by a cumulative 75 basis points next year after keeping them at a record low, the Philippine National Bank (PNB) said.

PNB Head of Research Division Alvin Joseph Arogo said the Central Bank may start hiking the policy rate after the election, especially if the country’s GDP growth and inflation numbers would end up higher than expected, along with a more aggressive policy stance from the US Federal Reserve.

Arogo said this scenario could result in BSP raising the key interest rate by 25 basis points for each of the three consecutive quarters next year starting at the end of the second quarter.

This would then raise the figure to 2.75 percent by the end of 2022 from the current 2 percent.

He noted there is now more pressure from Fed, especially after it said it will double the pace of reducing the monthly debt purchases to US$30 billion.

“This suggests that tapering will end around March 2022 [rather than middle of next year], which US economists believe opens the door for an earlier start in the rate hike cycle,” he said in an economics research report.

In terms of their Baseline view, Arogo expects the BSP to raise the key interest rate by 25 basis points at the end of the third quarter (or 2.25 percent) and to keep this level until the end of the year given that they still believe that BSP will be comfortable to start the rate hike cycle when the economy is nearer its prepandemic level or fourth quarter of 2019. Arogo said they estimate this would occur in the last quarter of 2022.

To recall, the BSP kept the overnight reverse repurchase rate steady at 2 percent since November 2020 meeting.

It has also raised its inflation estimates for this year and next year by 10 basis points to 4.4 and 3.4 percent, respectively.