BANGKO Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said voting for a 75-
basis point increase in interest rates on Thursday’s Monetary Board (MB) meeting will increase the country’s likelihood of hitting its inflation target by 2024.
In his message at the “EJAP-Ayala Business Journalism Awards” last Friday, the central bank chief reiterated the importance of monetary policy to temper inflation and support the peso.
Medalla reiterated his position that monetary authorities will vote to match the interest rate hike recently implemented by the US Federal Reserve in the upcoming rate setting of the MB on November 17.
“The BSP’s policy rate hikes will also prevent a significant narrowing of the interest rate differential between the US and the Philippines,” said the BSP governor. “Keeping a comfortable differential between our policy rate and that of the US lends support to the peso.”
Medalla said the BSP implements a flexible exchange rate policy but recognizes that the persistent depreciation of the peso “can dislodge inflation expectations” making it necessary for monetary authorities to intervene, consistent with its price-stability mandate.
He also assured that the Philippines has ample gross international reserves (GIR) that can allow it to sell dollars and “smoothen foreign exchange market volatility.”
The country’s GIR stands at $94.1 billion as of the end-October. This is equivalent to 7.5 months’ worth of imports of goods and payments of services and primary income. (Full story: https://businessmirror.com.ph/2022/11/08/gir-inches-up-in-october-but-still-below-100-billion/)
The peso, meanwhile, has gained some bearings as Friday’s trade showed it closed at P57.347 to the US dollar, the highest it has traded since September 16 when the peso closed at P57.073 to the greenback.
“The BSP uses three tools to cushion the economy against disruptions — interest rate adjustment, a flexible exchange rate, and foreign exchange market participation,” the central bank official said. “We use a combination of these tools in a well-calibrated manner to keep the impact of external shocks manageable.”
Meanwhile, Medalla said the BSP is on track to attain its twin goals under its “Digital Payments Transformation Roadmap.”
These goals are to increase the volume of financial transactions in the country through digital platforms by half and at least 70 percent of Filipino adults should be financially included through a formal transaction account.
“I am glad to report that we are on track to achieve these twin goals. In 2021, 30 percent of financial transactions were done through electronic channels, while 56 percent of Filipino adults already had formal transaction accounts,” Medalla said.
Higher inflation
IN a recent televised interview, National Economic and Development Authority Undersecretary for Planning and Policy Rosemarie G. Edillon said inflation has not yet peaked despite hitting 7.7 percent in October.
Edillon expects that Typhoon Paeng (international name Nalgae) may lead to higher inflation in November. She said, however, that assistance programs were in place especially for the agriculture sector.
These assistance programs are part of the short-term response of the government which covers the agriculture, fishery, and transportation sectors which have been significantly affected by higher prices.
Edillon said these cash transfers are being provided to help these sectors continue increasing their productivity despite soaring input costs such as fuel and fertilizer.
“Kasi ang kailangan talaga natin, iyong sinasabi nga naming robust solution para sa patuloy na paglakas ng ekonomiya natin ay magkaroon po tayo ng mas maraming trabaho,” Edillon said. [Because what we really need—a robust solution for the continued strengthening of our economy—is for us to have more jobs.]
“Para magkaroon tayo ng mas maraming trabaho—at saka iyong quality jobs ang tinitingnan namin dito ha—kailangan natin ng mas maraming investments,” she added. [For us to have more jobs—and we’re looking at quality jobs here, huh—we need more investments.]
Expensive food items pushed the country’s inflation to its highest level since the rice price crisis 14 years ago and may continue doing so this month, according to the Philippine Statistics Authority (PSA).
PSA data showed inflation reached 7.7 percent in October, the highest since December 2008 when inflation hit 7.8 percent, which also coincided with the onset of the Global Financial Crisis.
The inflation of food and non-alcoholic beverages was recorded at 9.4 percent nationwide and accounted for 80.9 percent of the increase in the country’s inflation print for October. Food inflation alone is pegged at 9.8 percent.