Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla is keeping close to his vest the pace of the next round of policy rate hikes but said inflation “likely” already peaked in January.

Medalla is reserved on whether or not the Monetary Board which he chairs, will go for a 50 basis points (bps) rate increase on Feb. 16 to curb inflation pressures.

He has signalled to the market back in December that the BSP will raise the key rate in the first two meetings this quarter, which is next week and on March 23.

Medalla’s initial announcement was a preference for two 25 bps, but with January’s 8.7 inflation breaching all expectations, including the BSP’s 7.5 percent to 8.3 percent forecast, the market is now pencilling in a bigger increase of 50 bps next Thursday as a monetary response.

“No forward guidance” as far as the Feb. 16 rate of increase is concerned, he told Manila Bulletin in a text message.

Medalla did not say it, but with the peso depreciating back to the P55 level on inflation worries, this adds another factor for a higher rate hike. The peso on Feb. 2 strengthened to the P53 range but it is back in the P55 level after the release of the higher-than-forecast January inflation.

In a Viber message to reporters on Wednesday, Feb. 8, Medalla said inflation “most likely” has peaked in January.

“It was actually higher than the high end of our forecast,” he said. While he thinks monthly inflation may have hit its highest at 8.7 percent, he caveats with -- “of course, I can’t rule out another surprise supply shock” which would spike prices again. On a month-on-month seasonally adjusted basis, inflation went up to one percent in January from 0.3 percent in December.

The BSP in a statement said the inflation data is stressing the need for "sustained efforts to fight price pressures" and reiterated its call for non-monetary government measures to cushion the impact of persistent supply-side constraints.

“The BSP remains focused on restoring inflation to the government target and stands ready to adjust its monetary policy settings as necessary to anchor inflation expectations and safeguard the inflation target over the policy horizon,” it said.

As of its Dec. 15 policy meeting wherein the policy rate was at 5.5 percent, the BSP’s average inflation forecast for 2023 is 4.5 percent, closer to the two percent to four percent government target range. But this will be revised next week considering the unexpected January turnout.

Headline inflation increased to 8.7 percent in January from 8.1 percent in December, while core inflation rose to 7.4 percent from 6.9 percent. Core inflation does not include some volatile food and energy items to isolate demand-side price pressures.

The BSP noted that the higher inflation was due to non-food items, particularly the increase in housing and utilities inflation with higher electricity generation charges and the implementation of the approved water rate rebasing during the month.

Food inflation such as from vegetables and fruits increased in January due to the impact of bad weather to the agricultural sector last month. The inflation for dairy products and eggs, as well as fish also rose due to limited supply.