CNA – The Philippine central bank opted to deliver a big 50-basis point rate hike yesterday and flagged the likelihood of more rate increases at its next meetings to get a grip on inflation, which soared to a fresh 14-year high last month.
The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate by a half-point for a second straight meeting yesterday to 6.0 per cent, as expected by a slim majority of economists in a Reuters poll.
“An upward adjustment in the policy interest rate would also prevent inflation expectations from drifting further away from the target band,” BSP Governor Felipe Medalla told a media briefing after the central bank’s first rate-setting meeting this year.
The Monetary Board believed a strong follow-through monetary policy response was necessary to reduce the risk of breaching its inflation target of two per cent-four per cent in 2024, he added.
Last month’s headline inflation of 8.7 per cent, which blew past expectations, prompted the central bank to raise its average inflation forecasts for 2023 and 2024 to 6.1 per cent from 4.5 per cent and to 3.2 per cent from 2.8 per cent, respectively, building the case for more rate hikes this year.
“It is unlikely that we will not increase the rate (at the) next meeting,” Medalla said, adding it was difficult to rule out a “third” or “maybe a fourth” rate increase after yesterday’s policy action.
The peso firmed 0.3 per cent to 55.12 against the US dollar as of 0811 GMT after the BSP’s policy decision and signals. Philippine shares slipped 0.1 per cent, reversing earlier gains.
Yesterday’s 50-bps rise marked the eighth time the central bank has raised interest rates since last year to cool red-hot inflation. It next meets on March 23.
Despite further policy tightening, Medalla said, growth this year was expected to remain on solid ground due to pent-up demand. Manila is targetting growth of six per cent-seven per cent in 2023, down from 7.6 per cent last year.
Taking the cue from the BSP, Capital Economics said in a note it was now expecting two more 25-bps rate hikes this year and ruled out any rate cuts it had penciled in for later in 2023.
