BSP Hikes Interest Rates to Fight Inflation

Amid the rising inflation, the Bangko Sentral ng Pilipinas has raised its benchmark rate by 25 basis points (bps) to 2.25%, CNN Philippines reported. 

The interest rates on the overnight deposit and lending facilities also increased to 1.75 percent and 2.75, respectively. This is the first rate hike since 2018.

Controlling Rising Inflation

The country’s economy recorded a growth of 8.3 percent in the first quarter of the year, exceeding market expectations. According to BSP Governor Benjamin Diokno, the economy is “on track” to reach the 7 to 9 percent goalposts. 

The increase in prices of basic goods, however, rose to 4.9 percent in April, above the central bank’s estimate of two to four percent.

Inflation’s running average is 3.7 percent, which is within the expected but close to the upper end of the target.

More rate hikes are expected this year as economic recovery continues and inflation goes up. 

In an Inquirer report, HSBC Asean economist Aris Dacanay foresees another hike by 25 bps in June 23, as the BSP conducts its next policy review, and another increase by 50 bps in the third quarter of the year.

Meanwhile, ING’s senior Philippine economist Nicholas Antonio Mapa expects a total of 75 bps of BSP rate hikes this 2022.

Upside pressures, such as high oil prices and continued shortage in local pork and fish supply, compelled BSP to increase its inflation forecast for 2022 to 4.6 percent from the previous 3.7 percent. The central bank also noted the emergence of second-round effects, including the higher-than-expected adjustment in minimum wages in some regions.

Inflation could surpass five percent in the next few months before easing up within target by mid-2023, according to Diokno. It may average 3.9 percent next year, higher than the previous 3.3 percent forecast.

These economic trends led to BSP’s decision to hike up interest rates in a bid to avoid second-round effects and control inflation.

Impact on the Real Estate Market

Financial institutions, such as banks and lending companies, use BSP’s rates as a benchmark for loans. This means a property buyer would face higher interest rates when they take out a mortgage to purchase a piece of real estate. 

To combat the uncertainty of the times, including the changes that will unfold as the new administration steps in, some investors who have the capacity to buy may turn to the property market for protection against financial risks.

In the recently concluded business networking event Lamudi Link, Lamudi CEO Kenneth Stern said that real estate is going to be the best investment. Taking out a loan to purchase a high-value asset that would earn capital appreciation later can beat inflation, which makes the cost of money more expensive.

Stern encouraged real estate practitioners to adopt digital marketing to capture investors who are taking the plunge.

In the same event, Lamudi revealed its 1Q2022 data, which showed that luxury listings, properties priced P12M to P20M, experienced the highest lead growth out of all the property price ranges. This may be an early indication that investors who have the buying power are already scouring the market for potential assets.

Top Real Estate Hotspots in 1Q2022

The popularity of cities hosting central business districts is included in the trends observed by Lamudi in the first quarter of the year. Quezon City, MakatiTaguig, and Pasig were the top searched places in Metro Manila. 

According to Lamudi’s report, the appeal of these hotspots lies in the time and money saved by property owners and renters living near their workplaces. Investors considering where to purchase properties can look into these location trends as a reference for buying decisions. 

Aside from proximity to business hubs, the infrastructure developments in the area matter. In the Visayas region, Cebu was the most popular location in the first quarter of the year. 

Anurag Verma, Director of Broker Classifieds & Partnerships at Lamudi, said the demand for properties in the area may have been due to the completion of the massive Cebu-Cordova Link Expressway (CCLEX), also known as Cebu-Cordova Bridge and the Third Cebu-Mactan Bridge.

Infrastructure developments improve the accessibility of a location while triggering an increase in property values. 

Lamudi is expected to tackle more real estate trends as the economy recovers in the highly-anticipated property event The Outlook: Philippine Real Estate Conference, happening this year.

Sources: CNN Philippines, Inquirer

Stay tuned for the latest real estate news and tips by following Lamudi on Facebook, Twitter, Instagram, Youtube, and LinkedIn.

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