The Bangko Sentral ng Pilipinas may increase the policy rate by more than 100 basis points before the end of 2022, if the US Federal Reserve would adjust its own borrowing cost by 150 basis points, Governor Felipe Medalla said Monday.
Medalla’s statement during an event organized by The Asset magazine in Taguig City was a departure from his earlier statement that there was no need for the BSP to match Fed’s rate hike point by point.
Finance Secretary Benjamin Diokno, Medalla’s predecessor, had said he was expecting a 100-bps hike for the rest of the year. Medalla said the adjustment could be more than that depending on the Fed’s action.
“My view is, it could be more [than 100 bps]… If there are two 75 [bps hike] by the US [Fed], I think it is not good if we only have two 50 [bps]…,” Medalla said.
“One scenario is there will be two 75 [bps] hike by the Fed. The [first] 75 bps is almost sure this November,” Medalla said.
Medalla also said there would be no more “off-cycle move” by the Bangko Sentral for the rest of the year, unlike when monetary authorities surprised the market in July by raising the overnight borrowing rate by 75 basis points to rein in inflation and support the value of the peso.
“That [off-cycle] is not necessary… All we have to do is announce what we are going to do. That is the advantage of having a credible central bank…,” he said.
Diokno told the Bloomberg earlier the government could use $10 billion from the gross international reserves to prevent the peso from further depreciating against the dollar. Commenting on this, Medalla said the country has the buffers, although he did not comment how much would be needed.
President Ferdinand Marcos Jr. earlier said the government could use interest rates to defend the peso and mitigate the impact of inflation, which is the administration’s main priority.
Inflation in September accelerated to a four-year high of 6.9 percent from 6.3 percent in August, driven by faster increases in prices of food and non-alcoholic beverages.
The September outturn was faster than 4.2 percent a year ago and was the highest since 6.9 percent registered in October 2018 during the rice crisis. Inflation in the first nine months of 2022 averaged 5.1 percent, above the government’s target range of 2 percent to 4 percent.
The peso also settled at a record low of 59 per US dollar four times this month on Oct. 3, 10, 13 and 17. It closed at 58.87 against the greenback Monday.
The Monetary Board, the policy-making body of the BSP, raised on Sept. 22 the policy interest rate by 50 basis points to 4.25 percent. The move came following an earlier 75-basis point hike by the US Federal Reserve to tame the persistently high inflation in the world’s largest economy.
This brought the BSP’s total rate increase this year to 2.25 percent, more than double the borrowing rate of 2 percent in 2021 at the height of the pandemic.