Two major global banks — HSBC and Standard Chartered Bank- have hiked their 2022 growth forecast for the Philippine economy following the higher-than-expected expansion in the first quarter, which is also the reason for the projected hikes in the central bank rates.
In its global research report released Tuesday, HSBC revised upwards to 6.5% from 5.7% its economic growth forecast, as measured by gross domestic product (GDP), for the current year, and the 2023 projection from 5.3% to 5.6%.
HSBC said the 8.3% expansion of the economy in the first three months this year is a “good opportunity to pre-empt potential inflation and capital outflows,” even as the rate of price hikes is expected to accelerate further following the 4.9% rise last April, which was already above the government’s 2-4% target.
The average inflation to date stood at 3.7% but authorities and economies alike forecast sustained acceleration given the uptick in the prices of oil and other commodities in the international market.
“Data show that second-round effects are beginning to take effect and may further materialize over the coming months. Thus, we now expect inflation to accelerate to 5.5% in 2Q22 (second quarter of 2022 compared to the previous forecast of 4.7%), and to gradually taper back within the BSP target range by 1Q23 (first quarter of 2023),” the report added.
The forecast report said that while the economy continues to recover, risks like developments in the job market as well as the rate of the vaccination program against the Covid-19 pandemic persist.
Thus, it forecasts the Bangko Sentral ng Pilipinas’ (BSP) key rates to be hiked by 25 basis points (bps) during the rate-setting meeting of the central bank’s policy-making Monetary Board (MB) on May 19 and another 25 bps in June.
“We then anticipate 50 bps worth of hikes in 3Q22, and a 25-bp hike in each subsequent quarters until 3Q23 (third quarter of 2023), after which the policy rate will remain at 4%,” it added.
The BSP’s key rates have been slashed by a total of 200 bps in 2020 as part of the central bank’s measures to help cushion the impact of the pandemic on the domestic economy. To date, the BSP’s overnight reverse repurchase (RRP) rate is at a record low of 2%.
Standard Chartered Bank, in a report released during the day, forecasts the BSP’s key rates to be hiked by 25 bps in each rate-setting meeting of the MB from May to December this year to bring it to 3.5% by the end-2022.
It earlier projected the BSP’s key rates to rise starting August this year by 50 bps in the third quarter and 25 bps per quarter until the third quarter of 2023.
“We do not rule out a 50-bps hike at upcoming meetings if inflation surprises significantly to the upside (6% level). However, our base case assumes that BSP will opt for a measured and gradual pace of rate hikes to support a sustainable economic growth recovery amid still-elevated uncertainty (due to the Russia-Ukraine conflict, China’s slowdown, and global monetary policy normalization),” it added.
Standard Chartered also changed its growth forecast for the domestic economy for this year from 7.5% to 8%. “The Q1 GDP print validates the narrative that the Philippines’ economic recovery has gained traction,” it said. The same decision was made for the inflation forecast for the year, which was raised from 3.6% to 4.5%.
“With China sticking to its dynamic zero-Covid policy and the Russia-Ukraine war, supply-side disruptions may persist throughout the year, keeping commodity prices elevated. In addition, the robust economic recovery and improving labor market conditions (March unemployment fell to 5.8%, the lowest since the start of the pandemic) may lead to broadening inflationary pressures in the months ahead,” it added. (PNA)