Bangko Sentral ng Pilipinas Governor Felipe Medalla said over the weekend local monetary authorities are more concerned over local inflation than the actions by the US Federal Reserve.
“Of course, we are affected by what happens with the Fed but in general, our inflation policy is largely driven by Philippine inflation,” Medalla said in a speech during the Philippine Economic Briefing held in Washington D.C.
The March 2023 headline inflation eased to a six-month low of 7.6 percent from 8.6 percent in February, but core inflation remained elevated.
The March print was the lowest since it settled at 6.9 percent in September 2022. This remained elevated compared to the 4 percent a year ago.
Inflation in the first quarter averaged 8.3 percent, over the target range of 2 percent to 4 percent.
The Monetary Board of the BSP raised the policy interest rate by 25 basis points to 6.25 percent on March 23.
Medalla said it would be nearly impossible to hit the upper end of the inflation target range of 2 percent to 4 percent for 2023. He said it would take a negative inflation in the remaining months to hit upper end of 4 percent.
“What was unique about this year is the US policy rate changes were so large—four 75 basis point [hikes] in a row to the point where the Philippine policy rate became too close to the US policy rate. And as you know, since the dollar is the global currency, people would prefer the dollar to the peso, if the policy rates are the same,” he said.
“We are now at that stage where we are watching that [differential]. We want to make sure that our policy rate is not lower and should be around 1 to 1.25 percentage points higher than the Fed’s. That’s what the markets are saying,” he said.