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Thursday, February 29, 2024

BSP: 25 bps interest rate hike possible in November

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Monetary authorities will likely opt for a 25-basis-point increase if another interest rate adjustment is warranted next month, Bangko Sentral ng Pilipinas Governor Eli Remolona Jr. said over the weekend.

“If there is a hike, [it’s] more likely 25 [basis points] than 50, but [it] depends on the data…if there is a hike,” Remolona told reporters at the sidelines of an event late Friday afternoon at the BSP headquarters in Manila.

“The likely scenario is… I’m not sure 25 would be justified. There is a good chance we won’t hike. There is a good chance we will pause. There is a chance we might hike, but 50 [bps] is a bit of a stretch,” Remolona said.

Remolona also clarified that local monetary authorities decided to raise the policy rate by just 25 basis points to 6.5 percent on Thursday, instead of the bigger 50 basis points because they were waiting for the latest data.

“We were not sure because there were incoming data. So we were a bit conscious about the data,” Remolona said.

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He was referring to the October inflation data which would be released in the first week of November and the third-quarter gross domestic product figures which would be announced before the next policy meeting on Nov. 16.

Remolona said last week that he was hoping the coming data would be nicer to monetary authorities, otherwise another rate hike might happen.

He also said that he was no longer expecting inflation to return to the target range of 2 percent to 4 percent this year.

“I think from March to July next year, inflation will be above 4 percent…That is what our model says. Beyond July [2024], it will be somewhere around 3 percent and stay there for the rest of 2024,” he said.

Remolona said despite the aggressive policy stance, the monetary tightening had not affected the economy’s growth prospects, saying the slowdown in the past months was due to the waning of pent-up demand.

He said the GDP growth in the third quarter might settle around 4.5 percent which, according to him, could represent “some recovery from the second quarter [of 4.3 percent].”

The Monetary Board said it recognized the need for urgent monetary action to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations.

The latest baseline projections point to an elevated inflation path over the policy horizon as upside risks continue to manifest.

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