The Bangko Sentral ng Pilipinas (BSP) is expected to end its accommodative monetary policy this month by raising interest rates for the first time since the start of the Covid-19 pandemic, foreign and local observers have said.

Analysts from Capital Economics, ANZ Research, Moody’s Analytics and the Bank of the Philippine Islands (BPI) all attributed their views for the central bank’s Monetary Board’s May 19 rate-setting meeting to growing faster than projected 8.3% of the Philippine economy. the growth of gross domestic product (GDP) in the first three months of the year, as well as the rise in inflation rates.

“With the central bank governor signaling his intention to begin normalizing policy soon and with inflation and growth beating expectations, the May meeting will likely kick off the BSP,” noted economist Gareth Leather. senior of Capital Economics for Asia.

He warned headwinds were mounting, saying the boost from economic reopening would start to fade as rising inflation began to weigh on consumption.

As a result, Leather said the London-based research consultancy was skeptical that monetary authorities would enter an aggressive tightening cycle, noting that the Bangko Sentral has frequently said it would proceed with caution.

“A key thing to watch for in Thursday’s meeting is whether that message stays the same,” he added.

Analysts at ANZ Research, for their part, believe that the strong first quarter GDP figures indicate that economic activity has reached pre-pandemic levels, which the central bank had predicted in the second half of 2022.

With the growth outlook improving, the BSP should focus on inflation, which is now well above the official target range of 2-4%.

“With this growth-inflation mix, we expect the BSP to deliver its first 25 basis point (bps) hike at its next meeting next week,” the analysts added.

Meanwhile, rising food and gasoline prices, said Sonia Zhu, associate economist at Moody’s Analytics, are testing Bangko Sentral’s accommodative monetary policy settings.

“A rate hike in June is very likely as broad-based growth takes hold. However, with growing pressure on the BSP to stop mounting inflationary pressures, we wouldn’t be surprised by a rate hike in May.” , she said.

Local lender BPI, meanwhile, believes the current GDP figure gives the central bank more leeway to raise interest rates. With inflation posing a danger to the recovery, even a small tightening of monetary policy can help control prices.

He said continued high oil and coal prices could eventually lead to second-round effects, leading to more entrenched inflation. Moreover, as the economy recovers, demand factors have started to drive inflation.

Due to increased demand, imports continued to rise, forcing the peso to weaken. The faster pace of policy tightening by the US Federal Reserve has put more pressure on the peso, BPI added.

“The hike in the policy rate will serve as a stabilization tool that could temper the depreciation of the peso. In addition, it will likely prevent a substantial decline in dollar reserves that could lead to greater volatility in local markets,” he said. he continued.

The bank said a 50 basis point hike combined with a cut in the bank reserve requirement ratio at Bangko Sentral could be implemented on May 19 or June 23 this year.