Bangko Sentral ng Pilipinas Governor Felipe Medalla on Tuesday floated the possibility of more policy rate hikes this year but ruled out another off-cycle adjustment.
Medalla said during the livestreamed Post-SONA Economic Briefing at the Philippine International Convention Center that raising the policy rate by another 75 basis points outside the regular Monetary Board meeting would not likely happen again in the coming months.
“There will be no more off-cycle policy rate hikes… Too much depreciation of the peso could actually add to inflation…We are balancing these things… Maybe there are more rate hikes but not too much,” Medalla said.
Medalla was referring to the Monetary Board’s surprise increase in the policy interest rate by 75 basis points to 3.25 percent on July 14 to rein in inflation and support the peso against the US dollar.
“Our next meeting is in August. If you are going to bet on the numbers 0, 25, 50, 75, you can roll out the lowest and the highest. My guess is we can roll out zero or we can roll out 75,” Medalla said, hinting of a 25 or 50 basis-point increase.
“You have to balance [these things] because if you raise too much, it would be bad,” he said.
Medalla said inflationary pressures come from supply side factors, and much of them were “imported”.
Bangko Sentral increased the overnight borrowing rate three times this year―each with 25, 25 and 75 basis points, respectively that brought the figure to 3.25 percent from a record low 2 percent in 2021.
Medalla said despite the adjustments, the monetary policy settings were very supportive of economic growth.
“The economy can absorb the increase in policy rates…Our models in the BSP showed that despite the rate hikes, the government’s forecast of a 6.5-percent to 7.5-percent growth this year is well within reach. The 6.5-percent to 8-percent [annual growth target from 2023 to 2028] is likewise quite attainable,” he said.
Medalla said banks, which were adequately capitalized, could also absorb the rate increases.
“We are very optimistic that the monetary policy and credit supply will remain supportive of economic growth and financial stability,” Medalla said.
“Going forward, there are uncertainties, but we are ready to make necessary adjustments,” he said.
Medalla said, however, the inflation target range of 2 percent to 4 percent this year could not be met. He said even the United States, Singapore and other advanced economies were having higher inflation rates.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said the surprise 75-basis-point hike was meant to support or at least stabilize the peso exchange rate.
Ricafort said that further local policy rate hikes would remain possible, if needed, as a function of any further Fed rate hikes to bring down the elevated inflation.
Inflation in June accelerated to a 43-month high of 6.1 percent from 3.7 percent a year ago, driven by higher prices of food, non-alcoholic beverages and transportation.