BANGKO Sentral ng Pilipinas (BSP) Governor Felipe Medalla assured markets on Tuesday of another rate hike in their scheduled meeting in August after the surprise 75 basis points rate hike earlier this month.
Speaking at the post-State of the Nation Address (SONA) Economic Briefing, the BSP chief said the hike will be to the tune of 25 basis points or 50 basis points, depending on the latest data on the economy at that time.
“We can surprise people only once. So there will be no more off-cycle. As to how many more rate hikes before the end of the year, that will be very data dependent,” Medalla said.
“Come this August meeting, we can rule out zero and we can rule out 75 basis points. For the rest of the year, it all depends on what will happen in the outside forces,” he added.
The governor, who took the BSP helm a few weeks ago, said they are currently playing a “balancing act” in deciding the magnitude of further rate hikes for the rest of the year.
“On one hand, the current drop in the prices of oil—which is now below $100 [per barrel]—signals that there is less need for rate hikes. On the other hand, the US is surely going to raise its policy rate by 75 basis points,” he said.
“Too much depreciation of the peso—or what we economists call ‘overshooting’—could actually add to an inflation that is already high. So these are the things that we are balancing,” Medalla added.
The governor also defended their decision earlier this month to raise interest rates in an unscheduled meeting by 75 basis points, deviating from their earlier policy guidance of a “gradual” and “well-communicated” fashion of monetary policy support exit.
“Much of our inflation is what we call the supply side. And a big part of it is imported. But we have to act because what we are afraid of is that this imported inflation will have a life of its own and start a self-fulfilling prophecy of prices rising because prices are rising,” Medalla said.
Still growth-friendly
Amid their more aggressive monetary policy tightening, the governor said the current monetary policy still remains supportive of economic growth.
“75 basis points was considered large. However, when you look at it, our monetary policy is still very supportive of economic growth. Indeed, the policy rate—which used to be a record low 2 percent—is now just around 3.25 percent. So, by and large, the economy can absorb the increase in the policy rate,” Medalla said.
The governor added that growth targets remain “attainable” despite future plans of monetary policy hikes.
“Our own models in BSP say that in spite of all these increases in the policy rate, the government’s forecast of 6.5 to 7.5 [growth] this year is well within reach. And six and a half to eight and a half going forward, 2023 and onwards, are still all quite attainable,” Medalla said.
“So going forward, of course there is so much uncertainty, but we stand ready to make the necessary adjustments so that balancing between sustaining growth and ensuring financial stability on the one hand and price stability on the other will all be achieved,” he added.
The BSP is scheduled to meet again on August 18 for their next scheduled monetary policy meeting.
On Tuesday, data from the Bankers Association of the Philippines (BAP) showed that the local currency receded back to the P55 territory, closing at P55.3 to a dollar. This was a strong appreciation from the previous day’s close at P56.1 to a dollar.