THE country’s economic growth will slow due to global headwinds and the Bangko Sentral ng Pilipinas’ (BSP) stance to continue raising policy rates in 2023, according to credit watcher Fitch Ratings.
On Thursday, Fitch Ratings said these were the reasons for affirming the country’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘BBB’ with a negative outlook.
The country’s full-year growth is expected to slow to 5.5 percent next year after posting a growth of 6.8 percent this year and before recovering to 6.2 percent in 2024.
“The Negative Outlook reflects risks to the Philippines’ medium-term growth prospects, fiscal adjustment path and external buffers in an environment of higher interest rates, weaker external demand and higher commodity prices,” Fitch Ratings said.
“The “BBB” rating balances strong growth, external finances and a credible economic policy framework against lagging structural indicators, including per capita income and governance, relative to peers,” it added.
Fitch said its global growth forecast is expected to slow to 1.7 percent in 2023 and 2.8 percent in 2024, which could also affect the growth of the Philippine economy.
The credit watcher said the BSP may also raise policy rates beyond Fitch’s expectations to 5.25 percent. On Tuesday, Central Bank Governor Felipe M. Medalla said the Monetary Board could raise interest rates by another 100 basis points this year.
Medalla told reporters that if the US Federal Reserve raises interest rates by 75 bps, the Philippines should match it. (Full story: https://ift.tt/1phlGf6)
In September, the BSP hiked its rates for the third consecutive month by 50 basis points to 4.25 percent. (Full story: https://ift.tt/hARdj2s) The Monetary Board has a policy rate setting slated for November 17.
“The central bank has been focused on the second-round effects of imported inflation and exchange-rate depreciation, and has so far hiked its policy rate by 225 bp in 2022 to 4.25 percent, including an out-of-cycle increase of 75 bp in July,” Fitch said.
“We think its inflation-targeting framework remains credible and we expect rates to rise further, potentially beyond our assumption of 5.25 percent by end-2022, if domestic inflationary pressure continues to build,” it added.
Fitch expects inflation to average 5.5 percent in 2022, fuelled by higher commodity prices and currency depreciation. The moderation of these factors could slow inflation to 3.5 percent in 2024.
Nevertheless, Fitch said the medium-term inflation outlook is subject to considerable risk, with September consumer prices up 6.9 percent year on year, above the central bank’s 4-percent target, and core inflation up 4.5 percent annually.
Services inflation, Fitch said, has remained more muted and household inflation expectations are only just above 4 percent.
However, Fitch expects interventions in the foreign-exchange market to support the Philippine peso will be limited. The government has now repaid all of the P540 billion or over 2 percent of GDP in advances that the central bank made to it in 2020.
Nonetheless, it said the central bank’s holdings of government securities remained above prepandemic levels at P1.5 trillion in September.
“The government’s response to the commodity price shock has been measured, and it has resisted calls to impose blanket fuel subsidies,” Fitch noted.
Meanwhile, the debt watcher also said it expects the general government (GG) deficit to narrow to 4.3 percent of GDP in 2022 and 2.4 percent of GDP by 2024, from 4.8 percent of GDP in 2021.
This, Fitch said, is consistent with a narrowing of the budgetary central government (CG) deficit to 8 percent of GDP in 2022 and 6.3 percent of GDP by 2024, from 8.7 percent of GDP in 2021.
‘PHL growth will slow on risks, BSP rate hikes’
Source: News Paper Radio
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