Philippines central bank governor ready to raise rates by 50 bps in Aug

THE Philippines central bank is prepared to raise its policy rates by 50 basis points at its meeting in August, and follow up with further policy actions to control inflation and counter currency depreciation, its governor said on Thursday (Jul 7).

Governor Felipe Medalla said the Bangko Sentral ng Pilipinas (BSP) was paying close attention to "strong depreciation pressures" on the peso fueled by a hawkish tone from the US Federal Reserve, which if left unchecked, could fan inflation. "And because of this, the BSP is prepared to be more aggressive in raising its policy rate," Medalla told reporters in a phone message.

"In particular, BSP is prepared to raise its policy rate by 50 bps by August."

Last month's 6.1 per cent annual inflation rate, the fastest in nearly 4 years, brought the first half average rate to 4.4 per cent, well outside the central bank's 2 per cent-4 per cent target for the year.

A possible 50 bps rate hike next month would follow back-to-back quarter-point increases in May and June, and would bring the benchmark interest rate to 3.0 per cent.

"The BSP is ready to take further policy actions, if needed," Medalla said.

He had earlier flagged the possibility of an additional 100 bps rate hike this year.

The narrowing gap between Philippine and US interest rates has weighed on the peso, which hit a new 17-year low against the US dollar on Thursday.

"It's not prudent to let factors that significantly affect the exchange rate to add further to inflation that's already high," Medalla said. REUTERS