3.50% Interest Rate ‘Too Low’ for Ph GDP Growth

BMI Research, Fitch Group’s think tank, contends that the current policy interest rates of Bangko Sentral ng Pilipinas (BSP) are still “too low” to propel the country’s gross domestic product upward.

BMI Research said the BSP has to keep pace with the rising global interest rates in order to slow down the depreciation of peso and inflation.

It forecasts the central bank to make another rate hike before the year ends, with overnight reverse repurchase (RRP) rate to settle at 3.75 percent from the current 3.50 percent.

In its policy meetings last May 10 and June 20, BSP raised a total of 50 basis points to its key policy rates.

“In our view, the interest rate is too low for an economy that is expanding by close to 7 percent, and this concern has also been echoed by bond investors, who are demanding higher returns for their expectations of higher inflation,” the Fitch unit said.

“While the BSP hiked its benchmark interest rates by a total of 50 basis points in May and June, and signaled that it is prepared to continue hiking to safeguard macroeconomic stability (we forecast another 25 basis points rate hike before end-2018), this is likely to be offset by rising interest rates globally,” the BMI Research said.

It cited that the European Central Bank has pledged to end its asset purchase plan this year, while the United States Federal Reserve System is seen to further tighten policy, with a 25-basis point hike likely before end-2018.

The BMI Research likewise noted that should the BSP fail to keep pace with the rising global interest rates, this could further hurt the local currency.

For next year, central bank’s key policy rate is expected to be stable at 3.75 percent. (PNA)