Philippines signals another rate hike to fight global spillovers

·2-min read
Philippines' central bank Governor Felipe Medalla. (Photographer: Geric Cruz/Bloomberg)
Philippines' central bank Governor Felipe Medalla. (Photographer: Geric Cruz/Bloomberg)

By Siegfrid Alegado

Philippine central bank Governor Felipe Medalla said he would not rule out another interest rate increase in August, a day after delivering a surprise 75 basis-point hike to contain inflation at a near four-year high.

“We still have room to raise depending on the inflation picture,” Medalla said in an interview with Bloomberg Television’s David Ingles on Friday, citing spillover effects from other countries for Thursday’s off-cycle decision. “The need for a 50 basis-point move in August is much less now,” he said.

(Source: Bloomberg)
(Source: Bloomberg)

Bangko Sentral ng Pilipinas unexpectedly raised borrowing costs by 75 basis points to 3.25%, and is now another identical action away from returning rates to 2019 levels. Soaring inflation is driving central banks globally to embrace even larger hikes in a single sitting, with some Federal Reserve officials hinting that a far aggressive 100 basis-point move is also in play.

“We are acting on the basis of what is already happening and what we expect to happen,” Medalla said, referring to red hot inflation in the US and the Fed’s upcoming rate review. He said the BSP’s view is the Fed will raise rates by 75 basis points this month.

For the Philippines, that’s a departure from its previously stated position that it need not match the Fed’s moves like-for-like. The peso’s status as one of Asia’s worst performers this year has added to the urgency to use monetary policy tools sooner than later.

The local currency is down more than 9% this year and adds to inflation in a country that imports goods from fuel to rice.

Medalla said if the BSP hadn’t done anything, there was a risk of inflation averaging at 4.2% in 2023, a level that’s above the central bank’s 2%-4% target range.

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