BSP to match Fed policy tightening with 75bps hike in next meeting

The Bangko Sentral ng Pilipinas (BSP) is set to increase key policy rates by another 75 basis points this month to match the recent tightening in the United States, with inflation seen to have hit historic levels in October.

According to BSP Governor Felipe Medalla, the Federal Reserve’s policy tightening supports the local central bank’s stance to hike local rates by the same amount in its next policy meeting on November 17.

“By matching the Fed’s rate hike, the BSP reiterates its strong commitment to its mandate of maintaining price stability by aggressively dealing with inflationary pressures stemming from local and global factors,” Medalla said in a message to reporters.

“The BSP deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country’s exchange rate of the most recent Fed rate hike,” he added.

Medalla clarified that the planned hike will not be off-cycle as it will take effect after the scheduled meeting on November 17, in line with earlier pronouncements that there will no longer be any off-schedule policy movement.

The central bank projects inflation to have settled within 7.1% and 7.9% in October, which would breach the government’s target range for the seventh straight month if realized.

The latest outlook of the BSP indicates that inflation is projected to average 5.6% this year, 4.1% in 2023, and 4.0% in 2023.

It hiked rates by 50 basis points in September, bringing the overnight reverse repurchase facility rate to 4.25%, the overnight deposit facility rate to 3.75%, and the overnight lending facility rate to 4.75%.

Prior to this, it hiked rates by 50 basis points in August, 75 basis points in an off-schedule hike in July, and 25 basis points each in June and May.

“The BSP remains vigilant in monitoring all risks to the inflation outlook and is prepared to take necessary policy actions to bring inflation toward a target-consistent path,” Medalla said. —KBK, GMA News