A man looks at the Metro Manila skyline, Jan. 1. — PHILIPPINE STAR/MIGUEL DE GUZMAN

THE BANGKO SENTRAL ng Pilipinas (BSP) could raise its benchmark rate by as much as 75 basis points (bps) to bring the policy rate to 6.25% in the first half, Fitch Solutions Country Risk & Industry Research said.   

“Our central forecast is for the BSP to hike its policy rate by an additional 75 bps to peak over 6.25% in the first half of 2023,” Fitch Solutions Country Risk analyst Shi Cheng Low said in a webinar on Monday, adding that inflation might take longer to peak.   

Last year, the BSP hiked its benchmark interest rate by 350 bps, bringing it to a 14-year high of 5.5% to tame inflation.

“We now only expect (inflation) to drop below the BSP’s upper target limit of 4% only in the fourth quarter of 2023. So, this would cause the central bank to persist its tightening cycle for a little while longer,” Mr. Low said.   

Headline inflation quickened to a 14-year high of 8.1% in December from 8% a month prior.

This brought the full-year average to 5.8% in 2022 — the highest since 2008. It matched the BSP’s full-year forecast but still significantly above its 2-4% annual target.

Last week, BSP Governor Felipe M. Medalla flagged a 25-bp or 50-bp rate increase at this year’s first policy meeting on Feb. 16 to further curb inflation.   

Mr. Low said there are some risks to the forecast, such as more aggressive tightening by the US Federal Reserve.

“Larger-than-expected rate hikes by the Fed could exacerbate downside volatility for the peso once again and this could prompt steeper rate hikes by the BSP to ensure currency stability,” he added.   

The US Federal Reserve increased borrowing costs by 425 bps last year, bringing its own policy rate to 4.25-4.5%. The Fed has signaled it will continue tightening this year to battle inflation. 

The peso closed at P54.575 versus the US dollar on Monday, up by 31.5 centavos from its P54.89 finish on Friday. Since its record low close of P59 against the greenback on Oct. 17, 2022, the peso has appreciated by P4.425 or 8.1%. 

Fitch Solutions also kept its growth forecast for the Philippines, noting that gross domestic product (GDP) could slow to 5.9% this year from an estimated 7.4% in 2022 due to the lagged impact of monetary tightening and persistent inflation. This is slightly below the government’s 6-7% growth target for 2023.

“The Philippine economy stayed resilient in the third quarter of 2022. The economy was supported by substantial expansion, investment growth, and the release of pent-up demand,” Mr. Low said.   

Third-quarter GDP expanded by 7.6%, bringing the average growth to 7.7%. This is above the government’s 6.5-7.5% target range for 2022.   

“However, there are signs that the economy’s strength will prove to be difficult to sustain going forward. For example, a buildup in inventories in the third quarter of 2022 suggests that demand may be waning, while business sentiment has continued to weaken,” Mr. Low said.   

“Additionally, inflationary pressures have not subsided in the Philippines. Elevated inflation would prompt the central bank to persist in its hiking cycle and high interest rates will feed through to the economy, weighing on consumption and investment growth,” he added.   

The Philippine Statistics Authority is set to release fourth-quarter GDP data on Jan. 26. — Keisha B. Ta-asan