Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla wants to match the monetary move of the US Federal Reserve as he believes the local economy can weather the negative impact of higher interest rates.
During the Bankers Association of the Philippines forum on Tuesday, Oct. 25, Medalla said the BSP "must first respond to the Fed point by point.”
"Given our inflation levels, given what’s happening to the exchange rate. We, in this case, must need to respond to the Fed point by point,” Medalla said.
The central bank chief’s latest statement was a departure from his prior stance that there was no need for the BSP to match US Fed’s rate hike point by point.
The central bank chief also reiterated that he would vote to raise policy rates by 75 basis points if the US Fed will deliver the same magnitude at the conclusion of its next policy meeting.
“If they do 75 (bps), we do 75. If they do 50, we do 50. If they do 100, we do 100,” he added.
The BSP still has leeway to be more aggressive in its policy tightening to support the peso against the US dollar, the central bank governor added.
However, Medallas said any action on interest rates will depend on the decision of the seven-member policy-making Monetary Board, which he has only one vote.
"I personally believe we must be a little bit more aggressive in increasing rates also because I think the economy can withstand it," Medalla said.
Last Monday, Medalla said the BSP may increase the policy rate by more than 100 basis points before the end of 2022, if the US Fed would adjust its own borrowing cost by 150 basis points.
The next policy meetings of the Monetary Board are scheduled on Nov. 17 and Dec. 15.
Last Monday, Finance Secretary Benjamin E. Diokno said he sees additional 100 basis points increase in the central bank’s key policy rates until the end of the year.
Diokno, who as President Marcos’ finance chief sits on the BSP's monetary board, said the pace of increase can be done either by 50 basis points each in the next two rate-setting meeting.
Diokno said the rate hikes are seen to counter the impact of the Fed’s own rate hike decisions but clarified that the MB will not match the level of a rate increase by the Fed.