The Monetary Board of the Bangko Sentral ng Pilipinas (BSP), Philippines central bank hiked by 50 basis points to 4.25%, the highest since August 2019. BSP joined Indonesia and some other Asian central banks raising rates. Hong Kong’s monetary authority had also raised its base rate by 75 basis points to 3.5% on Thursday.
Later the same day, Taiwan’s central bank announced a 12.5-basis-point increase to 1.625%, Vietnam’s central bank said it would raise its benchmark rate, currently 4%, by 100 basis points on Friday. The Bank of Japan as widely expected kept rates unchanged its -0.1% target for short-term interest rates.
The Philippine central bank has increased rates by 225 basis points since May, 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 recent weeks. Philippine inflation averaged 4.9% on the year from January to August, above the central bank’s target range of 2% to 4%.
“In deciding to raise the policy rate anew, the Monetary Board noted that price pressures continue to broaden,” Philippine central bank Deputy Gov. Francisco Dakila told reporters.
The bank also raised its full-year inflation outlook for 2022 to 5.6%, from 5.4%, while raising its forecast for 2023 to 4.1%, from 4.0%. The core gauge, accelerated to 4.6 % y/y in August, up from 3.9% last month, which now brings it well above the bank’s 2–4% target.
The policy rate is supposed to reach the ~4.50% level by Q4-2022/Q1-2023 before it is held there into 2024.
Peso
Deputy Gov. Dakila signaled that the central bank could intervene to support the peso, which fell to a record low of 58 against the dollar on Wednesday.
“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 said.
Dakila 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.
Inflation is the Issue
Source: Scotiabank, Bloomberg, TC
From The TradersCommunity Research Desk