Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. said Tuesday an off-cycle interest rate hike may happen as early as Thursday this week amid the rising inflationary pressures.
“We will have a meeting now, and we will look at the data,” Remolona said at the sidelines of the 2nd Digital Financial Inclusion Awards at the BSP office in Manila.
“It [off-cycle rate hike] is on the table as early as Thursday,” Remolona said.
An off-cycle interest rate adjustment refers to a surprise increase or reduction of the policy rate during an unscheduled meeting of the BSP’s policy-making Monetary Board to respond to the latest economic developments.
Asked on why there would be an off-cycle rate hike, Remolona said “the data says inflation will go up very significantly, and there is a risk of affecting inflationary expectations.”
He did not give a hint on the magnitude of the off-cycle rate increase. “That is too much specific,” he said.
The last time the BSP went on an off-cycle rate move was on July 14, 2022 when it raised the benchmark policy rate by 75 basis points to 3.25 percent to rein in inflation and support the peso as the economy recovered from the global health crisis.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said the latest hawkish signal locally could be something preemptive in nature to better manage both actual inflation and inflation expectations.
“Amid the recent/lingering geopolitical risks on the Israel-Hamas war since Oct. 7, 2023 with a potential risk of widening in the Middle East, especially if it could involve Iran and other oil-producing countries in the region that could lead to higher global oil prices, inflation and policy rates,” Ricafort said.
The peso slightly strengthened against the US dollar as a result of the latest hawkish signal from the BSP. The local currency closed at 56.76 against the US dollar Tuesday, up from 56.84 Monday.
Monetary Board member V. Bruce Tolentino and Deputy Governor Francis Dakila Jr. said local monetary authorities remained focused on combating inflation. They said this in front of 30 investment funds in Marrakech, Morocco during separate meetings arranged by Bank of America Securities, Barclays and Standard Chartered Bank on the sidelines of the International Monetary Fund and World Bank Group Annual Meetings.
“We’re carefully watching the risks and remain hawkish. Before we consider any relaxation on the policy stance, we need to be very confident that inflation has been restored to the target,” Dakila said.
Dakila said the BSP expects average inflation to settle at 5.8 percent in 2023, and further moderate to 3.5 percent in 2024 and 3.4 percent in 2025. These expectations are also shared by professional forecasters who see inflation reaching 5.9 percent in 2023, 3.7 percent in 2024 and 3.5 percent in 2025.
Tolentino said addressing inflation involved interventions from both the BSP on the demand side and the national government on the supply side.
“Managing inflation is the responsibility not only of the central bank. We share it with the rest of the government, particularly the fiscal authorities, especially at a time when issues driving the inflation rate are supply side-driven,” Tolentino said.
Dakila said the Philippines’ robust external position continued to cushion the country against global spillovers. He said the country’s gross international reserves stood at $99.6 billion at end-August this year and represented 7.4 months’ worth of imports of goods and payments of services and primary income.
Overseas Filipino remittances also grew by 2.9 percent to $18.8 billion in the first seven months of 2023, while business process outsourcing revenues rose 8.0 percent to $13.6 billion as of June 2023.
Dakila said domestic liquidity remained sufficient to support the funding requirements of households and businesses. He said Philippine banks remained prudent in its lending activities, with the non-performing loan ratio remaining low at 3.4 percent at end-August 2023.
