Incoming BSP chief signals series of rate hikes to tame prices

June 20, 2022 - 12:30 PM
Bangko Sentral ng Pilipinas headquarters in Manila. The central bank’s first quarter Consumer Expectations Survey (CES) for 2018 showed an index of 1.7 percent, down from the previous quarter’s 9.5 percent and year-ago’s 8.7 percent. (Reuters file photo)

 The Philippine central bank’s incoming governor on Monday signaled the prospect of a series of rate hikes this year that could extend up to 2023 to tame inflation.

Felipe Medalla, who will take the helm of the Bangko Sentral ng Pilipinas on July 1, said there would at least be two more interest rate increases this year, but the door to more hikes was open if high inflation persisted.

“We know it’s at least two more for this year and if necessary more than two more and, if necessary, more increases in 2023,” Medalla told ANC news channel ahead of the central bank’s policy meeting on Thursday.

“But we don’t want to overuse that medicine because that medicine is not very effective on what we call supply shocks, especially global shocks,” he said.

Annual inflation soared to 5.4% in May, the highest in more than three years, moving further away from this year’s 2%-4% target band, fueled by increases in the price of food and fuel.

The central bank, which last month started unwinding its easy money policy, is widely expected to follow up with another rate hike of at least 25 basis points at its meeting on June 23. That would bring the key policy rate to 2.50%.

Medalla believed the Philippine economy, which grew a faster-than-expected 8.3% in the first quarter from a year ago, was strong enough to withstand the impact of tighter monetary policy.

“Current interest rates have plenty of room to rise without choking economic growth,” said Medalla, who will replace Benjamin Diokno, who takes on a new role as finance secretary next month.

—Reporting by Neil Jerome Morales and Karen Lema Editing by Ed Davies