The Bangko Sentral ng Pilipinas may be compelled to match the latest 25-basis-point hike in interest rate by the US Federal Reserve to support the peso and rein in the elevated inflation rate, an economist said Thursday.
The Fed raised its benchmark interest rate Wednesday by a quarter percentage point and hinted at possible increases going forward. This brought the US interest rate to a target range of 4.5 percent to 4.75 percent, the highest since October 2007.
“The BSP would likely match the latest +0.25 Fed rate hike on Feb. 1, 2023 on the next BSP rate-setting meeting on Feb. 16, 2023 to maintain a comfortable interest differentials as part of the measures to help stabilize the peso and overall inflation,” Rizal Commercial Banking Corp. chief economist Michael Ricafort told Manila Standard.
He said the Philippine peso’s “recent appreciation against the US dollar to the strongest in more than seven months would also be a consideration.”
The Fed raised interest rates by 75 basis points four times before opting for a smaller 0.5 percentage point hike in December.
The Monetary Board, the policy-making body of the Bangko Sentral, raised the benchmark interest rate on Dec. 15, 2022 by 50 basis points to a more than 14-year high of 5.5 percent to prevent the second-round effects of inflation and defend the peso against the greenback. It was the highest since December 2008 during the global financial crisis.
Citi, the largest foreign bank in the country, said the BSP might further increase the policy interest rates by 50 basis points to 6 percent in the first half, especially if inflation would remain elevated in the coming months.
Nalin Chutchotitham, Citi Philippines economist, said in an online briefing that inflation remained a key concern for the medium term.
“Thus we expect the BSP to remain hawkish and hike the policy rate by 50 basis points to 6 percent in the first half of 2023,” Chutchotitham said.
“The continuation of the hike is meant to tackle inflation this year and next year. We see inflation in 2023 to hit 5.3 percent and 3.3 percent next year. We expect inflation to be within the target band by October this year,” she said.
The BSP expects inflation in January 2023 to settle within a range of 7.5 percent to 8.3 percent. Inflation in December hit a 14-year high of 8.1 percent on faster increases in the prices of food and nonalcoholic beverages.
The BSP earlier reaffirmed its readiness to tweak its monetary policy stance if necessary to rein in inflation in the coming months.
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