BSP seen keeping interest rates high

HSBC expects the Bangko Sentral ng Pilipinas (BSP) to keep interest rates high over the short term to rein in inflation.

“We see the Bangko Sentral ng Pilipinas keeping the policy rate above the 2014-18 average of 3.50 percent for quite some time to quell inflation expectations, incentivize saving and narrow the current account deficit,” it said in a report.

It warned, however, that the adjustments “will likely take a toll on growth as higher interest rates can deter both consumption and investment.”

HSBC’s comments came a day after the Monetary Board raised the BSP’s policy rate by another 50 basis points (bps) to 6.0 percent, the highest since 2008.

Monetary authorities also raised their outlook for 2023 inflation to 6.1 percent from 4.5 percent, well over the BSP’s 2.0- to 4.0-percent target. The rate is expected to slow to 3.1 percent next year.

Central bank Governor Felipe Medalla said the economy was strong enough to absorb the impact of higher interest rates. But he said that every 50-bps hike would reduce gross domestic product growth by around 0.04 percent.

HSBC said that broadening the scale of nonmonetary policies and finding ways to raise government revenues efficiently could speed up the return to stability and shorten the path to prosperity.

The interagency Development Budget Coordination Committee expects the economy to grow by 6.0 to 7.0 percent this year amid heightened domestic and external risks.

Last year’s 7.6-percent expansion exceeded the government’s 6.5- to 7.5-percent target.

Medalla said the higher-than-expected growth would help monetary action dampen potential demand-side pressures and secondround effects.