January 31, 2023

Filipino Guardian

Sentinels of Filipino Free Press

BSP is open to more Fed rate hikes to tame inflation

Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla attends an economic briefing in Pasay City,
July 26, 2022. — REUTERS/Lisa Marie David

According to Governor Felipe M. Medalla, the Philippine central bank could further adjust the Federal Reserve’s next rate hikes if domestic inflation continues to accelerate.

“If inflation stays high, we have to keep up with the Fed,” Mr Medalla said in an interview with Bloomberg Television’s David Ingles and Yvonne Man on Friday. “If it is already clear that the inflation rate is slowing down, we may not have to follow suit.”

Mr Medalla’s comments came after the Philippines last month reported the fastest inflation in nearly 14 years and a day after the governor announced that the Monetary Authority at the Nov. 17 meeting would plan to increase 75 basis points this week will reach.

As price pressures remain elevated and the peso is near a record low, the 72-year-old governor is signaling he will proceed with the most aggressive central bank tightening in two decades.

Mr. Medalla said he prefers not to draw a line in the sand for the peso, and in that he differs from his predecessor, Treasury Secretary Benjamin E. Diokno. More flexibility in managing the currency will allow for more efficient use of the central bank’s dollar reserves, the governor said.

This is one of the reasons why he announced a rate hike on Thursday two weeks before the scheduled meeting.

“We don’t want to sell too many dollars,” Mr. Medalla said when asked why he signaled the rate hike so early. “The best way to do that is to let the markets know in advance what we’re going to do,” he said, adding that the country has ample foreign exchange reserves.

Inflation will peak this year and gains will slow to the central bank’s 2%-4% target by the second half of 2023, he said.

The peso, which has weakened about 13% against the dollar this year, rose 0.1% on Friday. – Bloomberg