BSP policy rate still accommodative – Medalla

Published September 22, 2022, 12:41 PM

by Lee C. Chipongian

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said interest rate environment that still has some room for adjustment as the central bank pledged to do all that is needed to bring down the elevated inflation.

“Despite the normalization of policy settings, our policy rate is still accommodative. Remember: we’re coming from four percent pre-pandemic,” he said on Thursday, Sept. 22, hours before announcing the latest policy rate settings.

BSP Governor Felipe M. Medalla (BSP photo)

Medalla told participants of Finance Philippines 2022 forum on Thursday that achieving a target-consistent inflation which means bringing it back to the two percent to four percent range is “of great importance to us.”

“Respectable growth is still possible under these terms, but for the BSP, price stability is the primary concern,” he said. “Of course, we will do what is necessary to achieve a target-consistent inflation path,” he added.

The BSP since May has raised the key rate by 175 basis points (bps), which brought the interest rate to 3.75 percent as of Aug. 18. The policy meeting on Thursday, Sept. 22. is expected to raise the key rate anew by 50 bps.

Medalla said at this level, the policy rate is still low. “Our policy rate is still lower than it used to be. If you compare policy rate to inflation, the real rate is still negative,” he said.

The BSP has noted the widening inflation upside price pressures in the near term but still consistent with its overall inflation outlook for 2022. In August, inflation rate stood at 6.3 percent, lower than 6.4 percent in July, and within the BSP forecast band of 5.9 percent to 6.7 percent for August.

Upside risks continue to dominate the inflation outlook in the near term due to the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, the sharp increase in the price of sugar, as well as pending petitions for transport fare increases.

Downside risks are still the weaker-than-expected global economic recovery as well as the resurgence of local Covid-19 cases in the country.

The BSP expects inflation to remain above the two percent to four percent target this year and will only fall below four percent in the second half of 2023.

Medalla has said that inflation will likely peak in September or October this year. Headline inflation year-to-date is at 4.9 percent average as of end-August.