MANILA, Philippines — Monetary authorities are likely to deliver back-to-back rate hikes with another 25-basis-point increase next month after starting the interest rate liftoff last May 19, according to Bangko Sentral ng Pilipinas Governor Benjamin Diokno.
In an interview with Bloomberg Television, Diokno said the Monetary Board is likely to pursue a gradual tightening of the country’s monetary policy stance next month.
“Our next meeting will be on June 23. And it’s likely that there might be a follow up on the rate hike. Of course, we are always data dependent and so we look at the data as presented by our staff and then we will act accordingly,” Diokno said.
The BSP delivered its first rate hike in more than three years or since November 2018 when it raised its key policy rates by 25-basis-points on May 19 to curb rising inflationary pressures.
The Monetary Board also raised its inflation forecasts to 4.6 percent for this year and to 3.9 percent for next year due to soaring global oil prices and elevated commodity prices due to the impact of Russia’s invasion of Ukraine.
Inflation quickened to 4.9 percent in April, the highest in more than three years, from four percent in March. As a result inflation averaged 3.7 percent from January to April, still within the BSP’s two to four percent target.
Diokno said the economic recovery came much earlier than expected after a stronger-than-expected gross domestic product (GDP) growth of 8.3 percent in the first quarter, faster than the 7.8 percent in the fourth quarter of last year and reversing the 3.8 percent contraction in the same quarter last year.
Due to the impact of the Russia-Ukraine conflict and rising interest rates, the Cabinet level Development Budget Coordination Committee (DBCC) has decided to narrow the GDP growth target to seven to eight percent instead of seven to nine percent this year, but retained the six to seven expansion from 2023 to 2025.
Likewise, the BSP chief said there was also a strong rebound in the labor market with unemployment rate improving to 5.8 percent.
However, Diokno said monetary authorities have also observed the emergence of second round effects, including the higher than expected adjustment in minimum wages in some regions to be followed by some other regions.
“So we are likely to increase by another 25 basis points in the next policy meeting,” Diokno said.
He said the central bank is comfortable with the gradual tightening of the country’s monetary policy stance.
Even before the interest rate liftoff, Diokno said the withdrawal of extraordinary measures started as the government settled its remaining P300 billion loan ahead of the June 11 maturity date and has significantly reduced its holdings of government securities from a high of 40 percent down to about three percent.
“We are comfortable with the pace of adjustments,” the BSP chief said.
Diokno said there has been an increase in inflation expectations, but it remains anchored as it is expected to ease back to within the two to four percent target by next year.
“There is no risk of inflation being disanchored at this time,” Diokno added.
Despite the external shocks brought about by the Russia-Ukraine conflict, the BSP chief said the peso remains stable, depreciating in tandem with the rest of the currencies in Asia, but still within the 48 to 53 to $1 range set by economic managers.
According to the BSP, there is steady inflow of US dollars from the remittances of overseas Filipino workers, earnings of the business process outsourcing sector, foreign direct investment inflows, and even tourism receipts that continue to boost the country’s gross international reserves level.