Hike rates

‘NOT OFF CYCLE’: MB to raise rates at next meeting


In another unprecedented decision, the Monetary Board announced yesterday that it would raise the key rates of the Bangko Sentral ng Pilipinas (BSP) by 75 basis points (bps), just after the US Federal Reserve raised its rates by the same amount. monetary policy settings.

But Felipe Medalla, head of the Monetary Council and governor of the BSP, said the action was not “off the cycle” as the rate hike will take effect on November 17, the next scheduled meeting of the Monetary Council.

MEDAL

“BSP deems it necessary to maintain the interest rate differential in effect before the last Fed rate hike, in line with its price stability mandate and the need to mitigate any impact on the country’s exchange rate. of the Fed’s latest rate hike,” Medalla said.

He said that by matching the Fed’s rate hike, “BSP reiterates its firm commitment to its mandate of maintaining price stability by aggressively addressing inflationary pressures stemming from local and global factors.”

“The PASB remains vigilant in monitoring all risks to the inflation outlook and stands ready to take the necessary policy actions to return inflation to a path consistent with the target, in which average headline inflation d Year-over-year will be within the 2-4% target range in the second half of 2023 and full-year 2024,” Medalla said.

The move will increase BSP’s overnight repo facility from 4.25% to 5%. Interest rates on deposit and overnight lending facilities will also be raised by 75 basis points.

It will be the sixth consecutive tightening action by the Monetary Board this year to combat widening price pressures. Prior to yesterday’s announcement, policy rates were raised by a total of 225 basis points.

The announcement also came after the BSP released its inflation forecast for the coming month on Monday.

BSP expects inflation in October 2022 to settle in a range of 7.1-7.9%, much faster than September’s four-year high of 6.9%.

BSP said inflationary pressures in October “emanated from rising transport fares, rising domestic oil prices, higher agricultural commodity prices due to recent typhoons and the depreciation of the peso.”

Reacting to yesterday’s announcement, Michael Ricafort,

RCBC’s chief economist said the move was “unprecedented in a positive way”.

“The clear and specific signals from local authorities have been unprecedented in a positive sense, in terms of greater transparency and forward-looking nature, thus promoting greater stability in the local economy and financial markets, as well as the creation of ‘a more conducive environment for better planning and preparation for business/industry, consumers, other institutions and the general public,’ Ricafort said.

He said the announcement will help “stabilize the peso exchange rate, actual inflation and inflation expectations, in addition to other policy toolkit measures.”

Ricafort sees the local policy rate by the end of 2022 between 5.5 and 6%, “depending on further Fed rate hikes and the trend in US inflation as one of the most important data to watch , as well as the behavior of the peso exchange rate vis-à-vis other currencies.

Domini Velasquez, China Bank’s chief economist, said they expected the Monetary Board to follow the Fed’s move with a 75 basis point hike for November.

“The statement from Medalla before the markets opened, giving certainty on the magnitude of the rate hike on November 17, probably tried to prevent the foreign exchange market from reacting, i.e. the peso depreciates ahead of the monetary council meeting,” Velasquez said.

“What’s crucial about (US Fed Chief Jerome) Powell’s statement is that they see the US terminal rate higher than when they met in September. The BSP will have to increase its key rates until next year if it maintains the interest rate differential of 100 basis points,” she added.