The Bangko Sentral ng Pilipinas is set to increase the benchmark interest rate today to tame inflation, its top official said Wednesday.
Bangko Sentral ng Pilipinas Governor Felipe Medalla, during the Economic Journalists Association of the Philippines-San Miguel Corp. economic forum in Manila, said members of the Monetary Board would decide whether to raise the interest rate by 25 basis points or 50 basis points.
The Monetary Board ruled out the possibility of keeping the policy rate at 3.25 percent or raising it by another 75 basis points, he said.
“It will not be zero [hold] or [another] 75 [basis points hike] tomorrow… It is like a toss coin… but I will not say which side of the coin is heavier,” Medalla said.
The Monetary Board raised the benchmark policy interest rate by 75 basis points in July to 3.25 percent to control the rising inflation and support the peso, a move that surprised the domestic financial markets.
The board also adjusted the interest rates on the overnight deposit and lending facilities to 2.75 percent and 3.75 percent, respectively. The rate hike was the third time this year.
Medalla said raising the policy rate for the rest of the year would remain possible, given the continuing risks to economic growth of the higher inflation.
Latest data from the Philippine Statistics Authority showed that inflation in July accelerated to a 45-month high of 6.4 percent from 6.1 percent in June, driven by faster increases in the prices of food, non-alcoholic beverages and higher transport fares.
The July outturn was faster than 3.7 percent in July 2021. This also brought the average inflation in the first seven months to 4.7 percent, above the target range of 2 percent to 4 percent.
Medalla said inflation would likely miss the target range of 2 percent to 4 percent this year because the headline inflation of 6.1 percent in June and 6.4 percent in July were higher than expected.
“The [policy] actions we take are all meant to bring inflation within the target range… We will use everything in our toolkit to bring inflation within the target band,” Medalla said.
Security Bank Corp. and the Ayala-led Bank of the Philippine Islands both predicted a 50-basis point hike in the policy rate today.
“It would be between 25 and 50 basis points… But personally I see 50 [bps]… We are in between two US Fed policy meetings, and we don’t know what the US Fed will do in its September meeting,” BPI lead economist Jun Neri said.
“I think 50 [bps] is the consensus now… If the Fed raises 75 bps in September and BSP does 25 tomorrow… that is not good,” he said.
Neri said raising the policy rate would help the BSP rebuild its shrinking gross international reserves level. The GIR in July fell to a two-year low of $98.8 billion, pulled down by the government’s payment of some of its foreign debt and decrease in the value of gold holdings.
