Incoming BSP chief Medalla signals 2 new rate hikes, more 'if needed'


Posted at Jun 20 2022 11:30 AM | Updated as of Jun 20 2022 11:50 AM

MANILA - The Bangko Sentral ng Pilipinas will likely raise the interest rate on June 23 and August and more until 2023 if necessary to anchor inflation, incoming central bank Governor Felipe Medalla said Monday.

Medalla said another 25-basis point hike in the key borrowing rate is highly possible on Thursday and another 25-basis point hike in August as the BSP implements a "gradualism" approach to monetary policy to temper inflation.

The goal is to prevent a spill-over effect from the elevated global inflation. Global oil prices and other commodities have been rising due to Russia's invasion of Ukraine.

"And one way to do that is to signal that the BSP will keep on adjusting the policy rate until we’re comfortable that the change of inflation from one month to the next will be consistent from 2 to 4 percent. That's why, I already said we’re going to raise it by .25 this meeting and raise it by another .25 in August," Medalla said.

"The best thing to do is signal to the markets that we are actually now preparing for a series of 25-basis point increases. Exactly how many, we know it's at least 2 more for this year and if necessary more in 2023," he added.

Inflation quickened further to 5.4 percent in May. The BSP had also hiked interest rate to 2.25 percent.

Despite headwinds, Medalla is hopeful that inflation could revert to the target next year, but it is expected to "barely" settle within 2 to 4 percent due to the global price challenges.

"What were aiming for is to stabilize it, unless there are new shocks coming, then we should be able to attain our inflation target next year but I think barely because the momentum from current inflation is just too powerful," he said. 

The Philippines is also facing a different landscape from the US, therefore it should not copy or match their monetary policy stance.

On Thursday, the US Federal Reserve hiked the interest rate by 75-basis points, the first since 1994.

The Philippines is also unlikely to suffer from stagflation even if it grows below the target of 7 to 8 percent, Medalla said.

Stagflation is when there is slow growth, high inflation and high unemployment rate.

The Philippine economy could grow by 7 percent, Medalla said, citing his personal forecast.

Watch more News on iWantTFC