MANILA, Philippines — Two more rate hikes might come this year as part of a series of increases that could last until 2023 as the Bangko Sentral ng Pilipinas moves to fight an elevated inflation.
The first of the two hikes this year could happen at the Monetary Board’s meeting on Thursday, June 23, while the next one could come in August, incoming BSP Governor Felipe Medalla said in an interview with ANC news channel on Monday.
The tightening will be “gradual” so the economy won’t careen to another collapse, Medalla said, adding that the BSP does not need to follow the US Federal Reserve’s aggressive tightening.
"And one way to do that is to signal that the BSP will keep on adjusting the policy rate until we’re comfortable that the change of inflation from one month to the next will be consistent from 2-4%,” Medalla said.
“That's why, I already said we’re going to raise it by 25 basis points this meeting and raise it by another 25 bps in August," he added.
"The best thing to do is signal to the markets that we are actually now preparing for a series of 25-basis point increases. Exactly how many, we know it's at least 2 more for this year and if necessary more in 2023," he continued.
At home, inflation sizzled to 5.4% year-on-year in May, the highest in over three years. It was also the second straight month that inflation breached the government’s 2-4% target.
The BSP admitted it might miss its inflation target this year amid a global supply problem believed to be a byproduct of the pandemic. To make matters worse, the ongoing Ukraine-Russia war is raising global energy prices and wreaking havoc on countries that are dependent on imported oil like the Philippines. PSA data showed inflation averaged 4.1% in the first five months of the year.
The BSP has already made its first decisive action to fight inflation last month by hiking rates for the first time in three years. But with the US central bank turning more hawkish by the day, some observers say the BSP must step up its attacks on inflation to stem the peso’s weakness amid a rallying US dollar.
The peso’s slump is due to “general strong dollar sentiment given rapid rate hikes by the Fed, and likely more,” Nicholas Mapa, senior economist at ING Bank in Manila, said.
“Perceived policy dissonance also causing the PHP weakness as BSP retains relatively dovish outlook versus the aggressive tightening by the Fed,” Mapa added.
Medalla will take over the BSP on July 1 to serve the remaining term of Benjamin Diokno, who will serve as finance secretary of the Marcos Jr. administration. — Ian Nicolas Cigaral with Ramon Royandoyan