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By Maricel E. Burgonio
Reporter
THE Bangko Sentral ng Pilipinas (BSP)
will hike interest rates in the second half of the year to mitigate
the rapid rise of inflation, Metropolitan Bank and Trust Co. (Metrobank)
said.
Last month, inflation rose to 6.4
percent, a 20-month high, from 5.4 percent in February, mainly due
to higher prices of food, including rice and corn. Last year,
inflation averaged 2.8 percent, the lowest in 20 years, owing to the
appreciation of the peso.
In its Economic Weather Report,
the country’s largest lender said a further increase in prices
would be mitigated by an increase in the BSP’s overnight rates,
and a surge in foreign exchange inflows in the second quarter of the
year.
Metrobank’s research unit
estimates that inflation would increase by 6.3 percent this year,
higher than the BSP’s target of 3 percent to 5 percent. While
liquidity growth is manageable at an estimated 13 percent this year,
upside risks to inflation would mainly come from high fuel and
commodity prices and possible increases in electricity and wages,
the lender said.
“It is probable that the
central bank will cut interest rates in the second half of the year
to narrow down interest rate differential and the peso’s rapid
appreciation,” Metrobank said.
The lender said a prolonged US
recession, oil prices above $100 per barrel and fiscal slippage
could derail further growth of the domestic economy.
In the last Monetary Board
meeting, the BSP decided to keep rates unchanged at 5 percent for
the overnight borrowing and 7 percent for the overnight lending
windows. The regulator also wound down some of the short-term
windows of its special deposit account (SDA), even as it trimmed
rates on the remaining ones.
Some analysts have said that the
BSP could tighten money supply by keeping interest rates at current
levels, instead of letting this drop further, and introducing more
debt instruments in the market.
Metrobank said inflation may hit
6.11 percent in the first half driven by the recovery of the peso as
dollar inflows are expected to surge in the second quarter on the
back of remittances. Despite higher oil prices, inflation would end
the year at 6.3 percent, it added.
The lender also forecast the peso
to end the second quarter at 39.75 against the dollar, and dip to
38.50 by the end of the year.
The peso had been volatile last
month, ranging from 40 to 41 against the dollar. It averaged 41.25
that month, from 40.67 in February. It further depreciated to the 42
level due to market concerns over the health of the global economy.
Metrobank said the country’s
foreign exchange reserves also contributed to its peso forecast, as
the reserves level rose above $36 billion. But growth will slow down
this year due to a weaker dollar, it said.
A key indicator of the
country’s ability to cover foreign exchange requirements, reserves
could be used to further pare down foreign debt and eventually
improve the Philippines’ sovereign credit rating, Metrobank said.
In terms of growth, the lender
said the country’s gross domestic product (GDP) would slow down to
6 percent this year from 7.3 percent last year, driven by the
services sector on the production side and increased household
spending and investment in construction on the demand side.
Remittances, which boosted
domestic consumption, would have a smaller impact in the economy
because of the global slowdown. Money sent home by Filipinos working
abroad however will remain the main source of foreign exchange
inflows and will surge during the second quarter in time for the
opening of new classes in June.
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