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Philippines: BSP may raise key rates to 6%
To tackle stubborn inflation
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may raise interest rates by 50 basis points this week as it tries to address the stubbornly elevated inflation that rocketed to a fresh 14-year high of 8.7 percent in January from 8.1 percent in December.
In a report, Moody’s Analytics said the BSP is expected to be aggressive in tackling inflation early this year by hiking key policy rates by 50 basis points to six percent on Feb. 16.
“Odds are high that the monetary policy tightening cycle will run for longer in the Philippines than elsewhere in Asia given stubbornly elevated inflation,” Moody’s Analytics said.
Inflation in January was the highest in 14 years or since the 9.1 percent recorded in November 2008.
It accelerated to 5.8 percent last year, exceeding the BSP’s two to four percent target range, from 3.9 percent in 2021 due to the impact of Russia’s invasion of Ukraine on global oil prices as well as supply constraints from the zero-COVID policy in China.
To fight inflation and stabilize the peso, the BSP raised interest rates by 350 basis points, which brought the benchmark rate to a 14-year high of 5.50 percent from an all-time low of two percent.
The Philippine central bank matched the aggressive rate hikes delivered by the US Federal Reserve point-by-point to maintain a healthy 100-basis-point rate differential, as the peso slumped by as much as 15.7 percent to an all-time low of 59 to $1 in October last year.
Due to the aggressive rate hikes and active participation in the foreign exchange market, the peso bounced back strongly to the 53 to $1 level early this month before weakening anew to 55 to $1, as inflation last January blew past expectations.
BSP Governor Felipe Medalla earlier said the central bank is ready to adjust policy stance as necessary “to keep further second-round effects at bay and prevent inflation expectations from becoming disanchored.”
The BSP chief is not ruling out another supply shock as he said that the fresh 14-year high last month was most likely the peak for the consumer price index (CPI).
“Most likely. Of course I can’t rule out another surprise,” Medalla said.
Both Medalla and Finance Secretary Benjamin Diokno earlier said inflation already peaked last December.
Inflation in January was above the BSP’s forecast range of 7.5 to 8.3 percent and the government’s average inflation target range of two to four percent for the year.
Similarly, core inflation, which excludes selected volatile food and energy items to depict underlying demand-side price pressures, increased to 7.4 percent in January from 6.9 percent in December.
Source: https://www.philstar.com/business/2023/02/14/2244691/bsp-may-raise-key-rates-6