- Medalla says can’t rule out more rate hikes
- Central bank raises 2023, 2024 CPI forecasts
- Medalla says growth to remain strong despite tighter policy
MANILA— The Philippine central bank opted to deliver a big 50-basis point rate hike on Thursday and flagged the likelihood of more rate increases at its next meetings to get a grip on inflation, which soared to a fresh 14-year high last month.
The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate PHCBIR=ECI by a half-point for a second straight meeting on Thursday to 6.0%, as expected by a slim majority of economists in a Reuters poll.
“An upward adjustment in the policy interest rate would also prevent inflation expectations from drifting further away from the target band,” BSP Governor Felipe Medalla told a media briefing after the central bank’s first rate-setting meeting this year.
The Monetary Board believed a strong follow-through monetary policy response was necessary to reduce the risk of breaching its inflation target of 2%-4% in 2024, he added.
Last month’s headline inflation of 8.7%, which blew past expectations, prompted the central bank to raise its average inflation forecasts for 2023 and 2024 to 6.1% from 4.5% and to 3.2% from 2.8%, respectively, building the case for more rate hikes this year.
“It is unlikely that we will not increase the rate (at the) next meeting,” Medalla said, adding it was difficult to rule out a “third” or “maybe a fourth” rate increase after Thursday’s policy action.
The peso PHP= firmed 0.3% to 55.12 against the U.S. dollar as of 0811 GMT after the BSP’spolicy decision and signals. Philippine shares .PSI slipped 0.1%, reversing earlier gains.
Thursday’s 50-bps rise marked the eighth time the central bank has raised interest rates since last year to cool red-hot inflation. It next meets on March 23.
Despite further policy tightening, Medalla said, growth this year was expected to remain on solid ground due to pent-up demand. Manila is targeting growth of 6%-7% in 2023, down from 7.6% last year.
Taking the cue from the BSP, Capital Economics said in a note it was now expecting two more 25-bps rate hikes this year and ruled out any rate cuts it had penciled in for later in 2023.
READ: Philippine January annual inflation accelerates to 8.7% | BSP ready to adjust policy rate to battle inflation
—Additional reporting by Enrico dela Cruz; Editing by Kanupriya Kapoor, Martin Petty and Sonali Paul
