BSP: No more off-cycle policy meeting this year

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has ruled out another off-cycle move on monetary tightening for the rest of the year as it closely watches external developments, including the aggressive rate hikes by the US Federal Reserve.

BSP Governor Felipe Medalla told reporters on the sidelines of the Annual Reception for the Banking Community that monetary authorities are unlikely to hold another surprise off-cycle rate setting meeting this year.

“No, unlikely. No off-cycle for the rest for the year,” Medalla said when asked if the BSP Monetary Board was going to hold another off-cycle meeting for the remainder of the year.

The central bank delivered a huge 75-basis point hike during a surprise off-cycle meeting last July 14 to tame inflation and stabilize the foreign exchange market as the peso was hitting new record lows.

The BSP Monetary Board is holding the last two of its scheduled eight-rate setting meetings for this year on Nov. 17 and Dec. 15. The body meets every after six weeks to set key policy rates.

The central bank has so far raised interest rates by 225 basis points this year, bringing the overnight reverse repurchase rate to 4.25 percent, the highest since 4.50 percent in June 2019.

This wiped out the cumulative 200 basis points in interest rate cuts that brought the benchmark rate to an all-time low of two percent in 2020 as part of the central bank’s heavy lifting or COVID-19 response measures.

However, the BSP shifted to a tightening cycle this year as it started its own interest rate liftoff amid soaring inflation and moved in tandem with the hawkish US Fed.

One scenario, Medalla said, is that the US Fed would deliver 200-basis point rate hikes, two 75 basis points and one 50 basis points before the end of the year.

“If that happens we have to respond. But exactly how big the response is depends on the data,” the BSP chief told reporters.

Inflation averaged 5.1 percent between January and September and continues to exceed the BSP’s two to four percent target range. The consumer price index (CPI) quickened its growth to 6.9 percent in September after easing slightly to 6.3 percent in August from 6.4 percent in July.

During its meeting last Sept. 22, the BSP raised its inflation forecasts to 5.6 percent instead of 5.4 percent for this year and to 4.1 percent instead of four percent for next year.

“Our forecast is inflation will fall close to three percent near the end of next year. When that happens, the current interest rates are not too low anymore,” Medalla said.

Economists are expecting a second off-cycle meeting by the BSP Monetary Board early next month as the US Fed is set to deliver another huge 75-basis point hike.BSP

Neri said in an earlier statement that he hoped the BSP would not repeat the low rate-hike in June when “we were caught between two meetings of the Federal Open Market Committee with much lower policy rate.”

Medalla, for his part, clarified that the BSP may or may not be in lockstep with the US Fed.

“No not necessarily, we may or we may not be. It depends on the data,” Medalla said adding that it would be impossible for the BSP to have zero response but clarified that it is not wise to respond 100 percent point by point to the moves of the US Fed.

During his speech, the BSP chief said the country is returning to some form of normalcy with the gross domestic product (GDP) expanding by 7.8 percent in the first half of the year.

The Philippines exited the pandemic-induced recession with the GDP growing by 5.7 percent after contracting by 9.6 percent in 2020 when the economy stalled due to strict COVID-19 quarantine and lockdown protocols.

However, Medalla said the country is again facing very difficult challenges amid the aggressive rate hikes y the US Fed to fight inflation as well as the impact of the Russia-Ukraine war.

For one, the BSP now expects the current account deficit to swell to $20.6 billion or five percent of GDP this year from about $6 billion or 1.5 percent of GDP last year as the price of imports surge due to the strong US dollar.

“This is probably the most difficult time that I’ve seen since I joined the Monetary Board more than 11 years ago,” Medalla said.