THE Bangko Sentral ng Pilipinas (BSP) is expected to be aggressive in increasing interest rates this week on the back of the 8.7-percent inflation rate recorded in January 2023, according to Moody’s Analytics.
The think tank expects the BSP to raise interest rates by 50 basis points in its meeting on Thursday. This will increase the policy rate to 6 percent.
With the expected increase, Moody’s Analytics said this will bring cumulative rate hikes since the tightening cycle began in June 2022 to 335 basis points.
“Odds are high that the monetary policy tightening cycle will run for longer in the Philippines than elsewhere in Asia, given stubbornly elevated inflation,” Moody’s Analytics said.
The Philippine Statistics Authority (PSA) earlier said the headline inflation rate was the highest in 15 years while core inflation, which reached 7.4 percent, was the highest in 24 years.
Local economists recently warned that persistently high inflation and bloated wage increases could lead to job losses nationwide.
They said job losses cannot be discounted at this point given that high inflation could translate to higher production losses incurred by firms nationwide.
Economists added that job losses would be possible if businesses/industries require more funds to pay for higher prices/inflation on inputs, investments, and other spending.
Earlier, the UK-based think tank Oxford Economics also said the performance of the Philippine economy will be below its historical average this year and next year, as GDP growth will not even reach 5 percent in 2023 and 2024.
In its latest forecast, Oxford Economics said the country’s economic growth will only reach 4.1 percent this year and 4.5 percent in 2024 on the back of sticky inflation, which is expected to dampen demand.
The think tank is also concerned that the forecast of other institutions such as the International Monetary Fund (IMF), for the Philippines and other emerging markets, may be too optimistic.
The IMF expects the country’s GDP growth to average 5 percent this year and 6 percent next year. Oxford Economics said this is 0.9 percentage points more than its forecast for 2023 and 1.5 percentage points more than its 2024 outlook.
If this happens, this would be the lowest growth the Philippines will register since 2020, the first pandemic year, when the economy contracted 9.5 percent. It may be noted that full-year GDP growth, excluding 2020, has consistently been growing faster than 5.5 percent since 2012.
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