Incoming Philippine central bank chief signals series of rate hikes to tame prices

THE Philippine central bank's incoming governor on Monday signaled the prospect of a series of rate hikes this year that could extend up to 2023 to tame inflation, adding he preferred a gradual unwinding of easy monetary policy.

Felipe Medalla, who takes the helm of the Bangko Sentral ng Pilipinas on July 1, said there would at least be two more interest rate increases this year, but the door to more hikes was open if high inflation persisted.

"We know it's at least two more for this year and if necessary more than two more and, if necessary, more increases in 2023," Medalla told ANC news channel ahead of the central bank's policy meeting on Thursday.

Medalla preferred to be less aggressive with interest rate increases, saying in BusinessWorld newspaper's online forum that he "personally do not like 50 basis points."

Annual inflation soared to 5.4 per cent in May, the highest in more than three years, moving further away from this year's 2 per cent-4 per cent target band, fueled by increases in food and fuel prices.

The central bank, which last month started unwinding its easy money policy, is widely expected to follow up with another rate hike of at least 25 basis points at Thursday's meeting. That would bring the key policy rate to 2.50 per cent. 

But some economists last week said the BSP may opt for a 50 basis point increase after the US Federal Reserve's big interest rate hike on Wednesday and the expectation of more moves ahead to bring down high inflation.

"We do not have to match the Fed," said Medalla. He believed the Philippine economy, which grew a faster-than-expected 8.3 per cent in the first quarter from a year ago, was strong enough to withstand the impact of tighter monetary policy.

"Current interest rates have plenty of room to rise without choking economic growth," said Medalla. REUTERS

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