A bank economist said over the weekend the Monetary Board of the Bangko Sentral ng Pilipinas would likely increase the policy rate by at least 25 basis points this week.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said in a report the BSP was also expected to match future policy rate hikes by the US Federal Reserve beyond this week’s meeting to support the peso and rein in inflation.
“The markets are anticipating the next local policy rate-setting meeting on Feb. 16, 2023, when local policy rates are expected to go up by at least +0.25 [from the current 5.50 percent], matching the +0.25 latest Fed rate hike on Feb. 1, 2023,” Ricafort said.
Ricafort said the BSP “could also still match any future Fed rate hikes after recent Fed signals of about two more hikes on the next Fed/FOMC rate-setting meetings on March 22 and May 2, 2023.”
The peso closed at 54.42 against the US dollar on Friday, which was among the strongest in 7.5 months. The peso recovered from an all-time low of 59 a dollar in October 2022.
“It is important to note that local policy makers have a good track record in managing the peso exchange rate,” said Ricafort.
Ricafort said a recent policy signal was the statement by President Ferdinand Marcos Jr. that the government might have to defend the peso in the coming months and use interest rates to mitigate inflation.
Economists from the First Metro Investment Corp. and University of Asia & the Pacific said in a joint report the Fed “will continue to raise policy rates, by at least 75 basis points in 2023, to bring inflation back to its target 2 percent in the light of unrelenting job creation in the US economy.”
“This should constitute another upward pressure on the US dollar-Philippine peso rate,” they said.
The Monetary Board raised on Dec. 15 the benchmark interest rate by 50 basis points to a more than 14-year high of 5.5 percent to prevent the second-round effects of inflation and support the peso against the US dollar.
The peso depreciated by 9.3 percent against the US dollar in 2022, pulled down by global uncertainties that impacted financial markets.
First Metro said the peso was expected to trade within a range of 57 to 59 to the dollar this year amid persistent uncertainties and aggressive monetary policy moves by the US Fed.