BSP likely to raise rates in June — Diokno
MANILA, Philippines — The Bangko Sentral ng Pilipinas might consider hiking interest rates in June, its governor said Tuesday, hoping that the economy is strong enough by that time to sustain its recovery with less help from monetary authorities.
Governor Benjamin Diokno made the pronouncement in an interview with Bloomberg, as he faces mounting pressure to hike amid an accelerating inflation at home and a growing club of central bankers in developed economies that have started tightening their monetary policies.
“We’ll look at new data. Hopefully, it shows first-quarter growth of maybe around 6-7%,” Diokno said. “And so on the basis of that maybe we’ll wait for another cycle, which is we’ll have another meeting in June. Maybe that’s the time we will consider the increase in the policy rate.”
This is the first time that Diokno gave a clearer timeline of the BSP’s “exit strategy” from the pandemic.
Prior to this, Diokno had telegraphed to the market that the BSP would begin its tightening cycle in the second half of the year, arguing that the BSP doesn’t need to immediately follow the actions of US Federal Reserve, which made its first interest rate hike in more than three years last March.
At the heart of BSP’s decision to defer a rate hike until now is the belief that nurturing the nascent economic recovery should take precedence over taming inflation. But consumer prices grew at their briskest pace in six months in March and nearly breached the government’s target, further narrowing the BSP’s room to sustain its ultra-loose monetary policy.
At the same time, a weak peso is also stoking inflation by bloating import costs of key products like oil, which is already expensive partly due to the ongoing war in Ukraine.
Still, Diokno believes the BSP is not falling behind the curve.
"The situation right now, what makes a big difference is between real interest rate in the US and the Philippines. Our inflation is around 3%, and yours in the US is 8.5%. Given that, we can afford to wait for the move of the Fed in the next two meetings," Diokno argued.
The BSP boss added that his plan to cut banks’ reserve requirement in the second half of the year is still “on the table”. If realized, the reduction would likely work in tandem with the rate hikes, which have the opposite effect of tightening money supply.
“That is not related to the crisis at all. I made that promise. I plan to reduce the reserve requirement,” he said.
"I will allow them to lend out the money rather than the central bank getting the money from them and let them lend out to the public," he added.
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