BSP rate at 6% possible next month

The Bangko Sentral ng Pilipinas (BSP) could raise the policy rate by 25 basis points (bps) to 50 bps during their Feb. 16 meeting, the first Monetary Board policy meeting for 2023.

BSP Governor Felipe M. Medalla said on Tuesday, Jan. 10, that their options are now much wider compared to what he said in December that the next rate hike could be no more than 25 bps. He has already signalled to the market that the BSP will likely raise the interest rates in February and on March 23.

Medalla said the inflation outlook is still the same and that it could be closer to two percent than three percent by the last month or months of 2023, or even early 2024.

He also said that inflation, which hit a peak of 8.1 percent in December, could normalize in the third quarter of this year.

The BSP chief stressed that at this juncture, there is less pressure to follow the rate-setting increases of the US Federal Reserve.

“Pressure on us to match US rate increases could be much lower,” he said. For one, the period of strong US dollar seems to be over and that “regardless of what (BSP does) inflation will go back to normal” and fall back to within the target range of two percent to four percent.

Medalla added that the BSP, which in 2022 has had to raise the BSP rate by a cumulative 350 bps to control inflation as well as ease exchange rate pressures, has done more than enough compared to other central banks in the region.

With the signal of two pending rate hikes, the BSP policy rate could be in the 6.25 percent to 6.5 percent level by March. If the BSP increases the rate by 50 bps on Feb. 16, this will bring the interest rate to six percent from 5.5 percent.

Medalla said earlier that after the first quarter, they may decide either another rate hike after the first two meetings, or the BSP may opt for a pause, as these actions are very much data dependent. The most recent rate hike was a 50 bps on Dec. 15.

The BSP has said that inflation will slow down in the next months after peaking in December due to several factors including negative base effects.

The easing global oil and non-oil prices, negative base effects, and the impact of BSP’s 350 bps cumulative policy rate adjustments will ensure inflation path will decelerate in 2023 until 2024.

The BSP said the risks to the inflation outlook continue to be on the upside for 2023 but remains broadly balanced for 2024.

The key upside risks are the potential impact on international food prices of higher fertilizer prices, trade restrictions and adverse global weather conditions. The higher food prices such as sugar and meat due to bad weather and supply disruptions are also upside risks, including pending petitions for transport fare hikes.