The Bangko Sentral ng Pilipinas is likely to maintain its accommodative monetary policy until the second half of 2022 or until the economy begins to recover, a Fitch Group unit said.

“We at Fitch Solutions expect monetary policy in the Philippines to be kept accommodative until H222 (second half od 2022),” it said in a commentary released on Monday.

The central bank kept its benchmark interest rates untouched on Thursday, keeping the key policy rate — the overnight reverse repurchase rate – at 2 percent.

Despite inflation remaining above the BSP’s 2-4 percent target range since January,  Fitch Solutions said the Philippines’ ongoing challenges with the coronavirus disease 019 pandemic and uncertain path to economic recovery mean that an accommodative monetary policy stance is still needed to provide a supportive environment.

“As such, we at Fitch Solutions believe the BSP will only begin to hike once the Philippine economy is on a sustained economic recovery and domestic demand-side price pressures become stronger, which we expect in H222.”

As a result, it expects key policy rate hikes of 50 basis points by the end of 2022.

As temporary factors diminish, Fitch Solutions anticipates inflation to return to the Bangko Sentral’s target range in the coming quarters.

In May, headline inflation remained unchanged for the third month in a row, at 4.5 percent, above the central bank’ target of 2-4 percent.

Prices are expected to moderate in the next quarters, according to the Fitch Solutions’ Commodities team.

“The lack of a commodities ‘supercycle’ would allay concerns within the BSP of persistent external inflationary pressures. Food price inflation will also prove temporary as the effects of the African Swine Fever outbreak on pork prices recedes over the coming quarters,” it said.

On the heels of rising vaccination rates, Fitch Solutions expects supply-chain disruptions to lessen significantly in 2022 as the Philippines gradually loosens border and movement restrictions.

“These factors and our view for subdued demand-side price pressures in the near term lead us to maintain our forecast for the headline inflation rate to average 4 percent y-o-y (year-on-year) in 2021 and 3.4 percent in 2022,” it added.