Philippines central bank flags 25 or 50 bps rate hike next month

THE Philippine central bank chief on Tuesday (Jan 10) confirmed interest rates would likely need to rise a further 25 or 50 basis points at next month’s policy meeting, though said pressure to match rate hikes by the US Federal Reserve was waning.

“The pressure on us to match US increases will be much lower,” Bangko Sentral ng Pilipinas (BSP) governor Felipe Medalla told reporters. “The need for us doing large adjustments is no longer there.”

With the BSP set to take further steps to help curb pressure on consumer prices, Medalla expects inflation to be within this year’s 2 per cent-4 per cent target band by the second half.

Inflation will likely fall below the midpoint of the target range by end-2023 or early 2024, he said.

The BSP, which raised its benchmark interest rate by a total of 350 basis points last year, as inflation hit a 14-year high, will hold its first policy meeting of the year on Feb 16.

The central bank’s main concerns, for now, are inflation and, to some extent, a strong US dollar and Medalla said he could not rule out further rate hikes until inflation pressures ease.

“I will say I am not worried about the monetary policy reducing output. What I am worried about is we are late and there will be a greater sacrifice of output later on,” he said.

Annual inflation soared to 8.1 per cent in December, the highest since 2008, bringing the full-year average to 5.8 per cent, outside the central bank’s 2 per cent-4 per cent target range.

Still, Medalla said the economy remained strong despite the BSP’s policy tightening, with pent-up domestic demand as pandemic restrictions have been eased likely to continue supporting growth.

The economy may grow by more than 6 per cent this year, he said. REUTERS