The BSP may tighten its policy ‘significantly’ this year – S&P

According to the S&P Global Rating, Bangkok Central ning Polypinus (BSP) is likely to be among the Asia-Pacific central banks that will tighten monetary policy significantly this year to protect it from external risks.

“While it is difficult to predict when the BSP will start raising rates, we expect them to increase by 50 basis points (bps) this year, more in the coming years and a total of 150 bps by the end of 2024,” said Louis Quiz, S&P Global Ratings. Its chief Asia-Pacific economist said in an e-mail Commercial world.

In its March 24 review, the Monetary Board kept it stable at 2%, citing the need to support economic recovery when it gained traction.

This favorable position was extended even though the BSP raised its inflation outlook to 4.3% this year, reflecting the effects of the Russia-Ukraine war on oil and commodity prices.

In a note titled “Asia-Pacific interest rate hike” released on Tuesday, S&P classified the Philippines, Hong Kong, New Zealand, Singapore, South Korea and Thailand as central banks that are expected to tighten policy significantly in 2022.

Emerging markets will generally face less external weakness, the report said, but warned of new risks posed by rising energy prices and tightening global monetary policy.

“As the current account balance of the Philippines has shrunk significantly this year, we expect the country to be among the emerging market economies in Asia that will face the risk of capital outflows due to the relatively high Fed interest rates,” Mr Quiz said.

The US Federal Reserve began raising interest rates by a quarter of a percentage point last month to control decades of high inflation.

BSP Governor Benjamin E. Diocono said they do not need to lock in with the Fed because they will only consider external developments to the extent that it could affect the outlook for local inflation and growth. He added that the economy has a strong external position to protect itself from the effects of global monetary policy tightening.

Before the war in Ukraine, raw materials and rising energy costs had already pushed up producer prices, S&P said.

Russia is the world’s second largest exporter of crude oil, with Ukraine being the main source of wheat.

“The Russia-Ukraine conflict will only exacerbate this trend. The sharp rise in spending on energy and other raw materials will add to the inflationary pressures, ”it said.

In March, inflation in the Philippines accelerated from 3% to 4% in February, as commodity prices rose due to the Russia-Ukraine war.

Mr Diocono said on Tuesday that inflation could exceed the BSP’s target band of 2-4% in the second half of the year and could slow down by the end of the first quarter of 2023. The central bank said non-financial measures would respond better to supply pressures. Through war, but assured that they will be ready to respond in advance if inflation expectations are “uncompromising”.

The BSP governor said they were still keen to adjust to higher interest rates in the second half of the year, while they hoped the economy would probably return to pre-epidemic levels.

The next policy meeting of the Monetary Board will be on 19 May. Its first review in the second half of 2022 is August 18. – Loose Wendy T. Nobel