‘Jumbo rate hikes over’

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has ruled out additional huge interest rate hikes after raising key policy rates by a total of 300 basis points.

In an interview with reporters on the sidelines of a forum on digital economy, BSP Governor Felipe Medalla said the US Federal Reserve is set to deliver smaller rate hikes in its next rate-setting meetings.

“My own reading is that the US will keep on raising, but no more than 75 basis points. So that will be a lot less painful for economic growth in the Philippines,” Medalla said.

The BSP chief, however, said that a pause is unlikely amid the elevated inflation in the country.

“Of course I already said that if the US Fed is doing 50 (basis points), given that the policy differential is really quite small, we cannot afford zero. Of course that’s just my opinion; I may be outvoted,” Medalla said.

The BSP has raised interest rates by a total of 300 basis points after delivering an aggressive 75-basis-point hike on Nov. 17. The overnight reverse repurchase rate now stands at a 14-year high of five percent from an all-time low of two percent.

The central bank is widely expected to deliver another rate hike in its last rate-setting meeting for the year on Dec. 15.

“My view is the interest rate differential is still quite narrow. So not responding to 50 (basis points) brings the interest rate differential to an extremely low number, below 100 basis points, which may result in undesirably volatile peso,” Medalla said.

Based on the outlook, he said the US Fed is likely to deliver another 50 and 25-basis-point rate increase as it is done with aggressive rate hikes.

“I think they are and so are we,” Medalla replied when asked if the US Fed is done delivering supersized and jumbo rate hikes.

According to Medalla, there are no plans to do another off-cycle rate-setting meeting similar to the one held on July 14 when it delivered a huge 75-basis-point rate hike.

Medalla said the central bank is still active in the foreign exchange market to smoothen volatility.

According to the BSP chief, a pause from the tightening cycle is possible next year if inflation returns to within the BSP’s two to four percent target.

“It’s possible, but it’s early to tell,” Medalla said.

Inflation averaged 5.4 percent in the first 10 months after quickening to a 14-year high of 7.7 percent in October from 6.9 percent in September.

This prompted the BSP to raise its inflation forecasts to 5.8 percent for this year, 4.3 percent for next year and 3.1 percent for 2024.