CONTINUED economic growth has given the Bangko Sentral ng Pilipinas (BSP) room to keep key interest rates unchanged well into this year, the research unit of banking giant HSBC said.

"Strong growth provides the BSP with the option to keep rates high for longer to mitigate the risk of FX (foreign exchange) volatility and inflation," HSBC Global Research economist Aris Dacanay said in a report.

The Philippine economy grew by 5.6 percent last year, slowing from 7.6 percent in 2022 and also falling below the 6.0- to 7.0-percent target.

It was still one of the strongest in the region, HSBC noted.

"The Philippines was the fastest-growing Asean (Association of Southeast Asian Nations) economy in 2023 and indicators, so far, show that 2024 GDP will be even better despite the high cost of borrowing," Dacanay said.

Strong growth, he added, will allow the BSP to ensure that inflation expectations are well anchored, and the Philippine peso is stable.

The BSP's benchmark rate currently stands at 6.50 percent, the highest since 2007, following 450 basis points (bps) of hikes beginning May 2022 as inflation surged in the wake of Russia's invasion of Ukraine.

Consumer price growth finally returned to within the central bank's 2.0- to 4.0-percent target last December but is again threatening a breach.

It picked up to 3.4 percent in February, and the BSP has said that the rate could have hit as high as 4.2 percent last month.

Given expectations of further increases in the second quarter, the central bank is expected to keep its rates steady and only begin easing policy in the second half, after the United States Federal Reserve starts cutting rates.

While BSP Governor Eli Remolona has said that monetary authorities could afford to not act in sync with the Fed, Dacanay said "the real policy rate differential between the Fed and the BSP, albeit improving as of late, is still not as wide as it was before."

"As a result, there is still a risk of FX volatility (and, thus, FX-induced inflation) if the BSP cuts rates ahead of the Fed," he added.

Dacanay expects the US central bank to start cutting rates in June, with the BSP following in the third quarter.