By Md Manzer Hussain

BENGALURU (Reuters – On Thursday, the Philippine central banks will start its tightening cycles, which is earlier than expected. They join other countries in a race against time to increase monetary policy, to counter rising inflation.

As the Southeast Asian nation’s economic growth is at an all-time high and inflation rising at a rate of over three percent per year, Bangko Sentral ng Pilipinas (“BSP”) must take immediate action to avoid the country from becoming hypersensitive.

Nearly two-thirds (11 of 17) of the economists polled by Reuters expected that BSP would raise its overnight reverse repurchase facility interest rate 25 basis points to 2.25% during its May 19 meeting. Six of the remaining economists expected no changes.

This was a sudden change from the expectations based on a survey last month, when many economists expected a rate increase to occur next quarter.

ShreyaSodhani, an economist, stated that there was a shift in the risk balance from inflation to growth after the strong economic growth of last week. This led to us to predict that the BSP would raise rates at its May meeting. Barclays (LON:).

We acknowledge that this is an extremely close call and there may be a delay until June.

Last month Governor Benjamin Diokno said that they might consider raising rates in June. However, he changed his mind last week, saying they are ready to modify monetary policy settings when they see signs of demand-driven inflation.

The poll found that economists expected tightening to continue by the BSP. The benchmark rate was expected to increase to 2.5% by the end of September, according to the majority. However, 7 economists predict it will rise to 2.75% or more.

The median rate showed that interest rates will rise further, reaching 3.0% in 2022. This is up from the 2.50% prediction of the previous survey. Three respondents expected rates of 3.50% to be at the end, and four predicted that rates would rise to 2.75% from then on.

This aggressive outlook was partly reflected in what major central banks expected to do. The Federal Reserve is most likely to increase rates by 50 basis point at its next meeting after making a similar move earlier this month.

A smaller number of respondents, who were forecasters for the year ending next year (five of 12), saw the BSP raising its key rate from 3.50% to 3.50%. End-2023 was predicted by two economists at 4.00%, which is the same rate it had before the COVID-19 epidemic.

Since November 2020 the BSP kept the interest rate at an all-time low. Economists warned that the BSP will fail to respond quickly to the demands of the curve, while its peers expect them to increase their policies at a faster rate.

Ruben Carlo Asuncion (chief economist, Union Bank of the Philippines) stated that if BSP holds onto its current rate post-June it will not be able to deal with rising inflation in the face of continued geopolitical risk and increased demand as a result of the opening of the economy.