Pressure rising for rate hike
THE TIME will soon be ripe for normalization of policy interest rates, according to analyses released yesterday.
Fitch Group’s BMI Research said it still expects a 25-basis point hike to 3.25% for the benchmark overnight reverse repurchase rate “before the end of the year” and another increase of similar magnitude in 2018.
The Bangko Sentral ng Pilipinas (BSP) has kept monetary policy steady since the last tightening round in September 2014.
“We believe that the cost of borrowing is currently too low for the level of economic growth, and with interest rates rising in the US and inflationary pressures in the Philippines likely to pick up further in the coming months.”
BMI said low interest rates may lead investors to “speculative and unproductive” decisions, in turn posing risks to the country’s macroeconomic stability.
“Already, we have seen the low interest rate environment since 2010 lead to heavy lending by commercial and universal banks to the real estate sector, with the sector loan exposure growing at around or more than 20% for the 25th consecutive quarters through June 2017,” it explained.
In a separate report also released yesterday, S&P Global Ratings said it expects the BSP’s Monetary Board to keep the policy rate steady this year and then increase it by a total of 75 bp to 3.75% by the end of 2018, rising further to 4.25% in 2019 and resting at that level the following year.
This, as gross domestic product (GDP) growth is expected to ease to 6.43% this year from 2016’s actual 6.92%, pick up to 6.5% in 2018, and further on to 6.64% in 2019 and 6.7% in 2020.
Those estimates compare to the government’s own targets of 6.5-7.5% this year and 7-8% annually till 2022.
S&P also projects headline inflation to clock 2.98% in 2017, 3.59% in 2018 and 3.74% in 2019 before easing to 2.55% in 2020 from last year’s actual 1.78% pace.
Those projections compare to the BSP’s forecast full-year average of 3.2% annually until 2019. — E. J. C. Tubayan
