MONETARY authorities will likely to deliver another 25 basis points (bps) hike in May as inflation remains well over target, Fitch Solutions said.

“We anticipate that the Bangko Sentral ng Pilipinas (BSP) will deliver one final 25 bps hike at the next meeting in May, before keeping the policy rate on hold at 6.50 percent thereafter,” the Fitch unit said in a commentary on Friday.

Inflationary pressures continue to linger, it added, and Philippine consumer price growth is also exceedingly high relative to the stated inflation goal when compared to neighbors such as Thailand and Indonesia.

Inflation was forecast to average 6.5 percent this year, slightly higher than the BSP’s 6.0 percent projection, but could drop to within the 2.0- to 4.0-percent target range on a monthly basis in the second half.

Food shortages have been driving the continued surge in prices, Fitch Solutions noted.

“The aggregate CPI (consumer price index) data showed that food infla

tion remained stuck above 10 percent year-on-year in February,” it said.

“We think that it will take a while before domestic supply conditions improve. The next major harvest is likely to finish only around April or May.”

Economic growth, meanwhile, was forecast to “slow sharply from 7.6 percent in 2022 to 5.9 percent in 2023, which would be well below the economy’s potential.”

“We think the economic slowdown will be driven by lackluster global demand and the lagged impact of domestic monetary tightening,” Fitch Solutions added, pointing out that the cumulative 425 bps increase ordered since May last year was much more aggressive than most parts of Asia.

While the currency weakness that had also pushed the BSP to raise interest rates had eased, Fitch Solutions said the peso remained “susceptible to sell-offs in the near term due to a sustained wide current account deficit.”

“In a risk-off event, the BSP may be forced to hike more aggressively than we expect to defend the currency,” it added.

“Second, if price pressures surprise to the upside, possibly due to further supply disruptions, the central bank would likely have to hike its policy rate even further to anchor inflation expectations.”