Home / Business / BSP to hike key rates by 50 bps next month — Medalla

BSP to hike key rates by 50 bps next month — Medalla

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said on Thursday, July 7, that a more aggressive 50 basis points (bps) interest rate hike on Aug. 18 is almost a sure thing, which will bring the benchmark borrowing rate to three percent from the current 2.5 percent.

Medalla said the Monetary Board, BSP’s policy-making body which he chairs, is ready to temper price pressures as well as the effect of the faster US Federal Reserves’ rate hikes on the depreciating peso which broke past P56 vis-a-vis the US dollar on Thursday, and the high inflation that just crossed six percent for June.

BSP Governor Felipe M. Medalla 

“If such pressures are left unchecked, these could add to the already high domestic inflationary pressures,” he warned. “And because of this, the BSP is prepared to be more aggressive in raising its policy rate, compared to its initial gradualist stance. In particular, BSP is prepared to raise its policy rate by 50 bps by August,” said Medalla.

Earlier this week, Medalla has signalled that the BSP will likely increase the policy rate to 3.5 percent by end-2022, which means another 100 bps rate increase, to contain the rising inflation.

The new BSP chief, who was a Monetary Board member since 2011, said there are pros and cons to gradualism.

“If the inflation is too high, even if the causes are impervious to BSP’s kit of policy instruments, a monetary policy response maybe necessary,” he said.

Medalla also said that it is not “prudent” for the BSP to “let factors that significantly affect the exchange rate to add further to inflation that already high (and) more so, if we can’t rule out that we might miss our 2 to 4 percent target, not just this year but next year as well.”

He is referring to the government inflation target of two percent to four percent for 2022 until 2024.

As of end-June, the average inflation is at 4.4 percent. The BSP’s average inflation forecast for this year is five percent and 4.2 percent in 2023, both years still above the target.

In June, inflation hit 6.1 percent from 5.4 percent in May, and the Philippine Statistics Authority said this is not yet the peak for 2022, given that prices of food and other commodity groups are still rising, especially with the transport fare hikes last month.

“The BSP is ready to take further policy actions, if needed. It will also continue to support and advocate for non-monetary actions by other government agencies to contain any further inflationary pressures that may spill over to 2023,” said Medalla.

The increase in the US interest rates of 75 bps last June 16 is complicating BSP’s targeting abilities. On June 23, the BSP mirrored the rate hike, but only by 25 bps, bringing the current policy rate to 2.5 percent.

Medalla said earlier that the large US policy rate hikes was causing nearly all currencies to significantly depreciate against the US dollar, including the peso which on July 7 was at P56.06.

The all-time lowest peso was at P56.45 on October 2004.

Medalla also said that the ongoing policy normalization, which could result in tighter global financial conditions, increased financial market volatility, and capital flow rebalancing across the globe, will heighten volatility in the country’s foreign exchange rates and capital markets.

Credit belongs to : www.mb.com.ph

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