‘Higher interest rates are here to stay’

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is likely to hold on to higher rates for a little longer, moving in lockstep with the US Federal Reserve and the rest of the central banks globally.

Based on the 2023 Financial Stability Report released on Tuesday, the BSP said any expectation of an early rate cut is optimistic, but higher rates will likely remain for sometime.

“It is more likely that the Fed will keep its policy rates elevated over a longer period than expected by the market,” the BSP said.

In its recent meeting, the Fed held rates unchanged and insisted that it wants “more confidence” before it starts easing.

As such, the Fed ruled out any monetary policy easing once it meets again in March.

Market expectation is for the Fed to start cutting rates as early as May.

For the Philippines, the benchmark interest rate is still at a 16-year high of 6.50 percent following consecutive hikes since 2022 as inflation sizzled as the need to stabilize the peso heightened.

“Progress has been made, and by extension, the spillover pressures are not as pronounced,” the BSP said.

“But the task of calibrating the economy with policy rates is also not yet complete. This is why most central banks do not take off the table the possibility of yet another rate hike,” it said.

The BSP’s Monetary Board is set to meet on Feb. 15 to decide on policy rates.

The central bank is widely expected to extend its pause for the third straight meeting.

This developed as inflation risks remain tilted to the upside on the back of higher food, transport, and oil costs, increased electricity rates, and impacts of El Nino.

The BSP has emerged as the most aggressive central bank in the region after raising key policy rates by 450 basis points since May 2022 to tame inflation and stabilize the peso.