The Bangko Sentral ng Pilipinas is preparing the public for more sharp inflation increases, a possible benchmark rate of 3.5 percent by end-2022, and an exchange rate at P54-P55:$1 in the next months due to supply shocks and the unpredictability of the Ukraine war.
HSBC forecasts the exchange rate to “drift to 55.5 by the end of 3Q 2022 .” The increase in the US interest rates of 75 basis points last June 16 is complicating BSP’s targeting abilities. On June 23, the BSP mirrored the rate hike, but only by 25 bps, bringing the current policy rate to 2.5 percent.
“This year, sad to say, the average inflation will, in all likelihood, breach the National Government’s target of 2-4 percent by quite a bit. Our current runs show that average inflation will remain elevated,” said Medalla. BPI analysts said at this rate, the BSP is expected to adjust rates higher until end-2022. There are still four scheduled Monetary Board policy meetings this year, the next one is on Aug. 18.
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