Philippines Central Bank Raised Rates by 50 basis points to 5.50% with Inflation at 14 Year Highs

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP), Philippines central bank hiked by 50 basis points to 5.50% and follows a 75 basis-point increase at the last meeting. It was the seventh consecutive rate hike, pushing borrowing costs to a new high since early-2009. BSP joined the Federal Reserve and the Hong Kong’s monetary authority in raising its base rate to combat inflation. Later the same day, Taiwan’s central bank announced a 12.5-basis-point increase to 1.75%,

Illustration: David Simonds/Observer

The Philippine central bank has increased rates seven consecutive rate hike, as it attempts to rein in prices and shore up a peso that has been trading at all-time lows against the U.S. dollar in 2022. Philippine inflation is at 14-year high.

It’s a “low probability event” that the terminal rate will be the same as the current rate, Governor Felipe Medalla said at a briefing, while underlining the need for aggressive monetary action to bring headline inflation within target as soon as possible. He stopped short of divulging the size of the next move.

“If I were betting my own money on whether it’s 25 or 50 basis points… more likely, it could go either way, it depends on the data,” Medalla said. “But it would be harder for me to bet that this is the last rate hike.”

The central bank sees inflation peaking in December and to reach 2% in Q4 next year. The central bank now sees inflation higher in both 2023 (average of 4.5% vs 4.3%) and 2024 (average of 2.8% vs 3.1%). All are above the central bank’s target range of 2% to 4%.

Peso

Deputy Gov. Dakila has signaled in the past that the central bank could intervene to support the peso, The peso closed 0.1% higher against the dollar after the widely expected decision, while stocks ended 1.1% lower before the announcement.

“The [central bank] stands ready to participate in the foreign exchange market only to ensure orderly market conditions and to reduce excessive short-term volatility in the exchange rate,” he has said.

Dakila in a previous interview said said the potential impact of higher global nonoil prices, petitions for further transport fare hikes, weather disturbances affecting food prices, and a sharp increase in the price of sugar all remain. He said the latest rate hike should “help alleviate some pressures” on the peso, even though the increase is smaller than the U.S. Fed’s latest adjustment.

Source: Scotiabank, TC

From The TradersCommunity Research Desk