Medalla says policy rate still supportive of economic growth; signals new hike in August

Jessica Fenol, ABS-CBN News

Posted at Jul 26 2022 11:02 AM

Bangko Sentral ng Pilipinas Governor Felipe Medalla. BSP/File
Bangko Sentral ng Pilipinas Governor Felipe Medalla. BSP/File

MANILA — The Philippines' robust economy can absorb the recent surprise increase in the benchmark interest rate, Bangko Sentral ng Pilipinas Governor Felipe Medalla said Tuesday.

The central bank in July implemented an off-cycle 75-basis points interest rate hike which brought the key policy rate to 3.25 percent. The adjustment was made to tame rising inflation caused by food supply and external effects stemming from Russia's invasion of Ukraine. 

"When you look at it, our monetary policy is still very supportive of economic growth… By large, our estimate [is] the economy can absorb the increase in policy rate," Medalla said during the Marcos administration's first post-State of the Nation Address briefing. 

Despite the higher interest rate, the 6.5 to 8 percent growth trajectory from 2023 to 2028 is "still quite attainable," Medalla said.

Finance Secretary Benjamin Diokno earlier said the country's economy has been growing at an average of 6 percent even when interest rate was as high as 4 percent. 

MORE HIKES?

When asked about the possibility of more rate hikes for the rest of the year, Medalla assured the public that an off-cycle adjustment was off the table.

"You can surprise people only once. So there’s no more off-cycle. As to how many rate hikes until the end of the year, it would be very data dependent," he said.

But for the August monetary policy-setting meeting, Medalla said the public could rule out 0 and 75-bps hikes. 

"In August, if you’re to bet on 4 numbers, 0, 25, 50 and 75 (bps), you can rule out the lowest and the highest," he said. 

He said the country could be raising rates until the US Federal Reserve continues its aggressive hiking stance. 

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