THE Bangko Sentral ng Pilipinas (BSP) could raise interest rates by another 100 basis points (bps) this year, depending on the interest rate hike to be implemented by the US Federal Reserve.
On the sidelines of a business forum on Monday, Central Bank Governor Felipe M. Medalla told reporters that if the US Federal Reserve raises interest rates by 75 bps, the Philippines should match it.
Medalla said the Fed could raise interest rates by 75 bps in November and another 75 bps before the year ends. He said this could merit the same response from the BSP.
“Eh, kung dalawang 75 [bps] ang US, alangan namang dalawang 50 [bps] lang tayo [If the US raises interest rates by 75 bps, it does not make sense for us to only raise interest rates by 50 bps],” Medalla said. “One scenario is there will be two 75s this year; [the] 75 this November [is] almost sure, for the Fed,” he added, partly in Filipino.
Medalla said raising interest rates is part of the focus on the Central Bank given that inflation has been “persistently high” and that the country only has a 50-percent chance of hitting its inflation target of 2 to 4 percent next year.
In a presentation, Medalla said the country’s inflation rate would likely average 4.1 percent next year. High inflation is expected to continue in the first half of next year and slow gradually in the second half.
However, Medalla said the slowdown in inflation in the third and fourth quarter of 2023 would not be enough to offset the high inflation in the first and second quarters of next year, thus, a full-year inflation of 4.1 percent.
“Next year, we have a fighting chance that, and this is my own gut feel, [there will be] at least a 50-percent chance of having an average inflation rate of 4 percent and an average inflation rate of 3 percent right in the middle of the target in 2024,” Medalla said.
Given this, Medalla said, as the Central Bank implements inflation targeting, it will have “to do more” to stabilize prices. He said the government must make it an “even contest” to attract and keep investments in the Philippines.
Based on data shared by Medalla, interest rates have been raised by the BSP by 225 basis points since May this year. The highest interest rates were raised in July at 75 bps while the lowest was at 25 bps in May and June.
The BSP also raised interest rates by 50 bps in August and September. In total, the Monetary Board raised interest rates five times this year.
In contrast, the US Federal Reserve has raised interest rates by 300 bps since March. But the Fed has raised interest rates by 75 bps in June, July, and September.
In March, the US Federal Reserve raised interest rates by 25 bps and another 50 bps in May. The US Federal Reserve is expected to meet next month and raise interest rates anew.