By Shaloo Shrivastava and Devayani Sathyan

BENGALURU, (Reuters) – The Philippines’ central bank will hold policy at its meeting on Thursday to help a nascent recovery despite a recent U.S. Federal Reserve rate increase and surging commodity prices following Russia’s invasion, a Reuters poll revealed.

The Governor Benjamin Diokno indicated last week that the Fed would continue to dictate monetary policy.

Bangko Sentral ng Pilipinas also has some room to be patient, since inflation in the Philippines remains within the bank’s target range (2% to 4%).

Nomura economists stated that “BSP believes that economic output will return later in the year to its pre-COVID levels, which sets the stage for its hiking cycle starting in Q4”.

In a poll conducted March 15-21, 17 economists expected overnight reverse repurchase to remain at record low 2.00% as of the meeting on March 24, according to a survey. It was however predicted that it would rise 50 basis points to 2.50 percent in the final quarter, matching the February poll.

But, the rising cost of commodity due to Russia’s-Ukraine conflict is likely to cause inflation to rise in the Philippines. The country is a net importer, which could increase the likelihood for a earlier rate hike. Eighteen economists out of 17 predicted a rate hike for the third quarter.

Debalika Sarkar (an economist at ANZ) stated that the BSP has been hit hard by rising commodity prices, and the implications of these for growth and the inflation mix.

According to its own calculations, the annual inflation rate will exceed the 24% target range if oil prices rise above $95/barrel.

The last poll showed that Q1 2023, which was Q2 2023, had higher expectations for an increase to 2.75 percent.

On Friday, the Philippines’ peso dropped by 3% after its central bank said it would not be in hurry to raise interest rates. Analysts believe that currency weakness could still lead to a rate increase.

Nicholas Mapa, senior economist with ING, stated, “BSP will have to adjust monetary policies to shore up the flagging currencies which will in turn help prevent the building up of import inflation.” Mapa anticipates 100 basis point increases by year end.