Yuchengco-led Rizal Commercial Banking Corp. (RCBC) forecasts a gross domestic product (GDP) growth of six percent to 6.5 percent for this year – below the government’s seven-percent to nine-percent estimates — on the back of a possible above-target inflation rate of 4.5 percent.
RCBC economist Michael Ricafort said to temper inflation, they expect the Bangko Sentral ng Pilipinas (BSP) to raise interest rates by 75 to 100 basis points in the second part of 2022. This meant an overnight reverse repurchase rate of 2.75 percent to three percent from the BSP’s current two-percent rate since November 2020.
The BSP would have to adjust its key rate higher amid elevated global oil and energy prices due to the Russia-Ukraine war which Ricafort focused on during RCBC’s online investment outlook briefing on Friday, March 18.
Ricafort said that while Russia and Ukraine are in talks, no one knows how long the conflict will last and clashes continue despite these talks. Global oil will remain volatile due to the hostilities. Crude prices have eased but still among decade highs at $104 to $111 per barrel.
Domestic inflation rate has an estimated range of 3.5 percent to 4.5 percent for 2022 which is above the two percent to four percent government target, said Ricafort. This projection is based on the global oil trends and uncertainties. He said inflation may still go up with Russia’s continued invasion of Ukraine – “(and the rate) could be higher due to some disruptions in the global supply chain, increased spending for the presidential campaigns, (and the) elevated inflation might not be as transitory.”
Meantime, RCBC sees the stock market trading within the 7,500 to 8,000 level this year. The bank’s stock market analyst, Antonio Garcia, said the Philippine Stock Exchange Index (PSEi) is on track to hit the 8,136 mark by end-2022.
“We have slightly revised our year-end 2022 target for the PSEi to 8,136 from 8,174. In our view, the Philippines is on track towards economic recovery, boosted by further economic reopening beginning in March and election campaign spending. Historically, the PSEi trended upwards post-election towards the year-end,” said Garcia.
The Russia-Ukraine war will continue to put pressures on inflation resulting in most central banks hiking rates within the year. “Although the US Fed may raise its policy rate by at least five times this year, the BSP has repeatedly reiterated its accommodative monetary policy bias,” said Garcia.
He added that BSP “may revisit its pro-growth stance”.
Ricafort said high inflation will leave the BSP no choice but to start raising benchmark rates to protect the inflation outlook and to temper the peso’s depreciation.
RCBC expects the peso to further depreciate to P53 by end-2022 and to average at P51.5 to P52.5 vis-à-vis the US dollar.
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