PBBM says policy aims to tame inflation, arrest freefall of peso
President Ferdinand Marcos Jr. said the government will raise interest rates to keep inflation in check, a policy that is likely to raise the cost of borrowing.
After meeting with his economic managers Tuesday, Marcos said taming inflation was the “number one priority.”
The inflation rate rose to 6.9 percent in September, the highest in four years.
“We will continue to use interest rates to mitigate the effects,” the President said in a Twitter post.
“We may have to defend the peso in the coming months, but the overall forecast is that we are still doing better than other countries in terms of inflation,” he added.
The Asian Development Bank (ADB), in its Asian Development Outlook 2022 update, said it expects inflation in the country to reach 5.3 percent in 2022—much lower than the forecast in Laos, at 17 percent, Myanmar at 16 percent and Timor-Leste at 7.4 percent.
Economic Planning Secretary Arsenio Balisacan said developments in the global economy, such as Russia’s invasion of Ukraine, have had a global impact on prices.
“As a result, inflation has remained persistently high globally, driven by rapid price increases in food, transportation, and energy,” Balisacan said.
“The Philippines and our Asian neighbors are not spared from these trends—major economies in the ASEAN, such as Thailand, Singapore, Indonesia, and Malaysia, have seen their inflation rates accelerate in the past year,” he added.
Balisacan, however, noted that the country’s economic prospects “remain bright.”
Balisacan cited the World Bank’s recent release of its October forecast for 2022 and 2023, which expects the Philippines to grow by 6.5 percent in 2022, second only to Vietnam among major ASEAN economies, and by 5.8 percent in 2023, faster than Indonesia, Malaysia, and Thailand.
The Bangko Sentral ng Pilipinas said it could raise the benchmark interest rate by another 50 basis points in its next policy meeting to rein in inflation and support the peso from further depreciating against the US dollar.
BSP Governor Felipe Medalla last week said monetary authorities would not allow “excessive movements in the peso-dollar exchange rate.”
“We are facing very difficult challenges. Nobody, six months ago, would have predicted that the US Fed will be raising policy rates this aggressively.
After all, during those times, the Fed was saying, ‘Inflation is transitory. Inflation is not going to be very high.’ It turns out, this outlook was wrong,” he said during the annual reception for the banking community.
He also said there would be no more off-cycle move by the BSP for the rest of the year.
In July, the Monetary Board surprised the market by raising the benchmark policy interest rate by 75 basis points to 3.25 percent, to rein in inflation and support the peso against the US dollar.
On Sept. 22, the board raised the benchmark policy interest rate by another 50 basis points to 4.25 percent, following an earlier 75-basis point hike by the US Federal Reserve to tame the persistently high inflation in the world’s biggest economy.
The policy interest rate was at a record low 2 percent at the start of the year.
The peso on Monday depreciated to its lowest level of 59 against the US dollar for the fourth time this month as the greenback sustained strength amid the financial markets expectation of further rate hikes by the US Fed in November.
The peso closed at 59, weaker than the 58.935 per dollar on Friday. Total volume turnover hit $524.9 million, down from $542.8 million.
The first time the peso fell to the 59 level was on Oct. 3 and again on Oct. 10 and Oct. 13.
RCBC chief economist Michael Ricafort said minimum wage earners would suffer the brunt of price increases as inflation reduces their ability to spend for basic necessities and services.
Ricafort also said higher inflation would result in higher costs but lower profits for companies that might trigger job losses and layoffs.
Inflation in September 2022 accelerated to a four-year high of 6.9 percent from 6.3 percent a month ago, driven mainly by faster increases in the price of food and non-alcoholic beverages.
