BSP readies for another jumbo rate hike to match aggressive US Fed
MANILA, Philippines — The Bangko Sentral ng Pilipinas is preparing another supersized rate hike in its next meeting to match the US Federal Reserve’s latest tightening action.
BSP Governor Felipe Medalla said in a statement Thursday that the central bank would hike rates by 75 basis points after the Monetary Board meets on November 17. This would match the US Fed’s hike early Thursday morning.
READ: Fed delivers another steep rate hike with more to come
If realized, this would send the BSP’s benchmark rate to 5%. The BSP embarked on a series of rate hikes, beginning in May, to scale back its accomodative monetary policy stance that supported credit growth for most of the pandemic.
Medalla said in a statement that the BSP looks to keep pace with the interest rate differential even before the Fed’s latest rate hike. As it is, the Monetary Board has two rate-setting meetings pencilled in before the year ends.
“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 within the target band of 2-4% in the second half of 2023 and in the full year of 2024,” the BSP said in a statement.
Central banks everywhere pressed the panic button in recent months as they looked to tame boiling inflation within their respective economies by hiking interest rates.
In the Philippines, the BSP is expecting inflation to slow down in the coming months after projecting the prices of goods and services to accelerate between 7.1-7.9% in October.
By keeping pace with the US Fed’s actions, the BSP would introduce some calm over capital markets. The BSP is looking to spend $30 billion to prevent the peso from tipping over the P60-mark against a surging dollar.
Domini Velasquez, chief economist at China Banking Corp., said Medalla’s statements before markets opened here were undertaken to keep the peso from further depreciation.
“We were expecting the BSP to follow the Fed's movement with a 75 bp hike for November. The statement of Gov. Medalla before markets opened, giving certainty on the size of the rate hike on November 17, likely tried to preempt the foreign exchange market from reacting, i.e. peso depreciating before the monetary board meeting,” she said in a Viber message.
For Nicholas Antonio Mapa, senior economist at ING Bank in Manila, that BSP's statements showed credibility on their part considering that Medalla "long telegraphed for a point for point match."
"Today, he is showing that credibility is just as potent as actual rate hikes as PHP has steadied and outperformed the region even if actual differentials are at 25bp," he said in a Viber message.
The BSP’s rate hikes take 6-18 months before the economy feels the effects.
“Crucial in Powell's statement is that they see the terminal rate of the US higher than their September meeting. BSP will need to increase policy rates until next year if they will maintain the 100 bps interest rate differential,” Velasquez added.
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