Philippines announces 75-basis-point rate hike weeks ahead

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THE Philippine central bank will increase its benchmark interest rate by 75 basis points at its Nov 17 meeting to match the Federal Reserve hike, governor Felipe Medalla said on Thursday (Nov 3).

The increase in the overnight reverse repurchase rate from the current 4.25 per cent will take effect after the scheduled meeting in two weeks, Medalla said in a mobile-phone message to reporters before markets open, adding it's not an off-cycle move. Raising the policy rate to 5 per cent will take it to the highest level since 2009.

Bangko Sentral ng Pilipinas "deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country's exchange rate of the most recent Fed rate hike", said Medalla, who had advised he will give a statement post Fed hike earlier on Thursday.

The Philippines has embarked on its most aggressive tightening in two decades amid inflation poised to accelerate to the fastest in 13 years and a currency that has plunged to a record. The governor had signalled weeks ago of the plan to match the Fed hike as he talked about political pressures of keeping the peso above the 60 per dollar level.

The peso, among the worst performing currencies in the region, has plunged to a record low of 59 against the dollar in late September and held near that level for most of last month. It fell by 0.9 per cent on Wednesday to 58.47 per dollar, after last week's rally which was its best since July. Currency trading opens at 9.00 am local time.

"It's a bold, preemptive announcement and will help keep the peso below 60," said Trinh Nguyen, a senior economist at Natixis in Hong Kong. "Such hawkishness will shore up the currency and help contain inflation expectations while likely to tighten financial conditions and dampen demand."

By matching the Fed's rate hike, the central bank "reiterates its strong commitment to its mandate of maintaining price stability by aggressively dealing with inflationary pressures stemming from local and global factors", the governor said.

BSP is "prepared to take necessary policy actions to bring inflation towards a target-consistent path, wherein the average year-on-year headline inflation will be within the target band of 2-4 per cent in the second half of 2023 and in the full year of 2024", Medalla said.

Annual inflation likely settled within the 7.1-7.9 per cent range in October, exceeding the 6.9 per cent print in September, the central bank said earlier this week. The median estimate of economists in a Bloomberg survey is for a 7.1 per cent gain ahead of Friday's data release. That would put it at the fastest pace since February 2009, according to compiled data.

Farm damage caused by a recent typhoon could worsen price pressures. BLOOMBERG

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