The Bangko Sentral ng Pilipinas is set to increase its benchmark interest rate by 75 basis points in the next policy meeting this month to match the US Federal Reserve’s adjustment of its policy rate Wednesday to rein in inflation in the world’s largest economy, Governor Felipe Medalla said Thursday.
“As expected, the Fed increased its policy rate this morning [Manila Time] by 75 bps. This supports the BSP’s stance to hike its policy rate by the same amount in its next policy meeting on Nov. 17,” Medalla said in a Viber message.
Medalla said the BSP deemed it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country’s exchange rate of the most recent Fed rate hike.
“By matching the Fed’s rate hike, the BSP reiterates its strong commitment to its mandate of maintaining price stability by aggressively dealing with inflationary pressures stemming from local and global factors,” Medalla said.
The peso fell to 58.80 against the US dollar Thursday from 58.47 Wednesday.
The Fed’s latest rate increase brought the benchmark federal funds rate to a range of 3.75 percent to 4 percent. Rates are expected to peak at 4.5 percent to 4.75 percent in 2023, according to the US central bank’s own projections.
Medalla said the local interest rate hike would be “effective after the Nov. 17 meeting, so it is not ‘off cycle.’”
He said the BSP would remain vigilant in monitoring all risks to the inflation outlook and was prepared to take necessary policy actions to bring inflation toward a target-consistent path where the average year-on-year headline inflation would be within the target band of 2 to 4 percent in the second half of 2023 and in the full year of 2024.
Rizal Commercial Banking Corp. chief economist Michael Ricafort told Manila Standard in an email the latest 75-bps jumbo Fed rate hike for the fourth straight meeting was “widely expected by the US/global/local financial markets.”
“The latest signals/reiterations on a local policy rate hike of as much as +0.75 on the next rate-setting meeting on Nov. 17, 2022 would help stabilize the peso, actual inflation and inflation expectations, on top of other measures in the policy tool kit,” Ricafort said.
He said the clear and specific signals from local authorities were unprecedented in a positive manner, in terms of greater transparency and forward-looking in nature, thereby promoting greater certainty for the economy and financial markets.
He also said this would create an environment more conducive for better planning and preparations for businesses/industries, consumers, other institutions and the general public.
The Monetary Board, the policy-making body of the BSP, raised on Sept. 22 the benchmark policy interest rate by 50 basis points to 4.25 percent.
The BSP earlier said inflation in October likely accelerated to a range of 7.1 percent to 7.9 percent from the four-year high of 6.9 percent in September on higher fuel prices, weaker peso and the impact of weather disturbances to the agricultural sector.