July’s 6.4% inflation raises possibility of 50 bps rate hike in next meeting –Medalla

Published August 05, 2022 08:40 PM By TED CORDERO,GMA News

The Bangko Sentral ng Pilipinas (BSP) will likely deliver another aggressive policy rate hike in the Monetary Board’s upcoming meeting later this month, BSP Governor Felipe Medalla said Friday.

At a virtual forum organized by the Federation of Filipino Chinese Chambers of Commerce and Industry Inc., Medalla said that July's inflation print “raises the probability of a 50 basis points rate hike rather than 25 basis points.”

Inflation clocked in at 6.4% in July

, its fastest reading since October 2018 when inflation was recorded at 6.9%, amid the rise in the prices of food particularly fish, meat, and sugar as well as increases in land, sea, and air transport fares.

The BSP chief earlier signaled that the central bank will continue its monetary policy tightening cycle to keep inflation in check after the US central bank delivered a huge interest rate hike of 75 basis points.

During the forum, Medalla said that while he does not want to pre-empt the decision of the Monetary Board, “I know for sure in the next meeting, we will not have zero, we will not have 75 basis points [rate hike].”

He said that the policy rate adjustment will likely be at 25 basis points or 50 basis points in the Monetary Board’s scheduled meeting on August 18.

The BSP chief also ruled out another surprise rate adjustment following the off-cycle hike last month.

Late in July, the central bank delivered a hawkish off-cycle 75 basis points increase in key policy rates, bringing the overnight reverse repurchase facility to 3.25%, overnight deposit facility to 2.75%, and overnight lending facility at 3.75%.

The Monetary Board has already raised interest rates twice so far this year — 25 basis points in May, and another 25 basis points in June.

The latest hikes bring the policy rates back to their pre-pandemic levels, or those seen in February 2020.

This is also the most aggressive rate hike of the BSP so far since the interest rate corridor was implemented in June 2016, and the first off-cycle adjustment since April 2020.

Monetary policy or interest rates are among the tools used by central banks to stabilize inflation by controlling the money supply and raising borrowing costs.

Higher borrowing costs could make consumers and businesses spend less, therefore reducing economic activity or lowering demand and eventually lowering prices. — DVM, GMA News

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