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Manila Bulletin devider Business devider BSP to raise key rates by 75 bps on Nov. 17

BSP to raise key rates by 75 bps on Nov. 17

Published Nov 3, 2022 01:12 pm

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla on Thursday, Nov. 3, reiterated that they will match the 75 basis points (bps) rate hike by the US Federal Reserve which will bring the BSP policy rate from 4.25 percent to five percent by Nov. 17.

“As expected, the Fed increased its policy rate this morning (Manila Time) by 75 bps. This supports the BSP’s stance to hike its policy rate by the same amount in its next policy meeting on November 17,” said Medalla.

BSP Governor Felipe M. Medalla

The BSP chief said the central bank “deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country’s exchange rate of the most recent Fed rate hike.”

By matching US interest rates’ aggressive increases, the BSP will effectively curb inflationary pressures.

“The BSP remains vigilant in monitoring all risks to the inflation outlook and is prepared to take necessary policy actions to bring inflation toward a target-consistent path, wherein the average year-on-year headline inflation will be within the target band of 2 to 4 percent in the second half of 2023 and in the full year of 2024,” said Medalla.

On Thursday, the peso-US dollar rate intraday was at P58.75. BSP’s presence in the spot market has prevented the exchange rate from breaking past P59. Medalla has said that as a matter of policy, the BSP’s intervention in the exchange rate market is limited only to tempering sharp fluctuations and managing its volatility.

Medalla said previously that the BSP policy rates should at least be more than 100 bps higher than US Fed rates to “have some form of exchange rate stability.” The peso broke P59 to the US dollar four times since Sept. 29.

Since May this year, the BSP has raised the key rate by a cumulative 225 bps. That was done in five policy meetings in a row including one off-cycle rate hike in July. As of Sept. 22, the central bank benchmark rate stood at 4.25 percent.

Since price stability is a key BSP mandate, the rate hikes were intended to primarily bring back inflation path to within the two percent to four percent target range by 2024.

For this year, the average inflation forecast is 5.6 percent and for 2023, it is 4.1 percent. The January-September inflation is currently averaging at 5.1 percent, with the highest rate recorded in September at 6.9 percent.

Meantime, the BSP forecasts October inflation at 7.1 percent to 7.9 percent range due to higher prices of oil and agricultural products, transport fare and a depreciated peso. The government will release the latest inflation number on Friday, Nov. 4.

The BSP expects inflation will stay above-the-target in the near term amid broadening price pressures and second-round effects.

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