THE Bangko Sentral ng Pilipinas (BSP) is unlikely to reduce interest rates until next year due to the possible inflationary effects of El Niño, a unit of Fitch Solutions said.
The BSP kept its benchmark rate steady at 6.25 percent in its last policy-setting meeting.
BMI, a unit of Fitch Solutions, said that while it expects inflation to slow down to below 4 percent by the fourth quarter, the onset of El Niño “could threaten food price.”
El Niño is seen to reduce rainfall in many parts of the country, leading to dry spells and even droughts, which cut food production. The weather phenomenon is forecast to intensify in the Philippines in the fourth quarter of 2023 to the first quarter of 2024.
“In addition to inflation, maintaining currency stability will be a key consideration in the central bank’s near-term policy decisions,” BMI said.
It noted that the Philippine peso has depreciated by about 1.9 percent against the greenback in the year-to-date and is currently trending towards its one-year low.
The peso has lost around P2.00 this month alone against the dollar, closing at 56.77 to $1 at the end of Thursday’s trading.
“Policymakers will be cautious about exacerbating further weakness in the peso, especially given that the US Federal Reserve has not completely closed the door on further tightening – a key risk that we have been highlighting,” the Fitch Solutions unit added.
The BSP will likely keep interest rates at multi-year highs to keep inflation at bay, but at the expense of growth. “We have recently knocked down our 2023 growth forecast from 5.9 percent to 5.3 percent in light of a poor economic performance in Q2,” the research firm added. (ABS-CBN News)
