BSP ready to raise rates by 50bps in August
Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said on Thursday that interest rates might rise by 50 basis points in August amid inflationary pressures.
Medalla said the BSP is closely monitoring developments in the financial markets, especially the recent hawkish stance of the Federal Reserve, which has caused the Philippine peso to depreciate.
“If such pressures are left unchecked, these could add to the already high domestic inflationary pressures,” he said in a message to reporters.
“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 basis points in August,” he added.
The Monetary Board of the BSP is scheduled to meet on August 18.
It has already raised interest rates twice this year — by 25 basis points in May and another 25 basis points in June.
The overnight reverse repurchase facility stands at 2.5%, the overnight deposit facility at 2.0%, and the overnight lending facility at 3.0% following the latest hike, which took effect on June 24.
Medalla’s remarks come as the Philippine peso closed at P56.06:$1 on Thursday, its weakest performance since September 27, 2005 when it closed at P56.295:$1.
Local market watchers have cited the difference in the approach of the BSP and the US Federal Reserve, which has already hiked rates by 75 basis points in June alone.
“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,” Medalla said.
Inflation clocked in at 6.1% in June, marking its fourth straight month of acceleration and the highest reading in over three years since October 2018’s 6.9%.
President Ferdinand "Bongbong" Marcos Jr. said on Tuesday that he disagreed with the most recent report because "we are not that high," but Benjamin Diokno, a former BSP governor and current Secretary of Finance, later clarified that Marcos was "referring to it as a full-year figure."
The year-to-date inflation stands at 4.4%, which is within the 3.7% to 4.7% target set by the Development Budget Coordination Committee under the previous administration. The central bank expects it to average 5.6% in the second half, and settle at 5.0% for the full-year 2022.
Medalla on Thursday said that should inflation be “too high,” a monetary policy response may be necessary even if the causes are “impervious” to the central bank’s policy instruments.
“To put it in plain terms, it’s not prudent to let factors that significantly affect the exchange rate add further to inflation that is already high,” he said. —VBL, GMA News