Philippines rates could rise by more than 100 bps before year-end —BSP chief

October 24, 2022 - 6:06 PM
Bangko Sentral logo facade
The Bangko Sentral ng Pilipinas main building in Manila. REUTERS/Romeo Ranoco/File Photo
  • Governor: If Fed hikes by 75 bps, has to match
  • Finance sec: would use $10 bln in Q4 to support peso
  • BSP must manage exchange rate volatility

 Philippine interest rates could rise by more than 100 basis points before the year ends, the central bank governor said on Monday, in step with large rate hikes expected to be delivered by the U.S. Federal Reserve to fight inflation.

“It could be more. It depends on what the U.S. does,” Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla told reporters when asked if he shared the view of the finance secretary, who earlier said key rates should rise by 1 percentage point before year-end.

In the United States, at least another 75 bps move is expected at the conclusion of the Fed’s next policy meeting on Nov. 1-2, with further tightening in the pipeline as policymakers try to rein in consumer prices.

Medalla, who heads BSP’s seven-member monetary policymaking board, said if the Fed hiked rates by 75 basis points, he would vote to raise rates by the same magnitude, lest the peso PHP=, which has lost more than 13% against the dollar this year, remain under pressure.

“We have to match it,” Medalla said separately at a business forum. “The thing we are watching the most is what the Fed will do.”

The BSP has so far raised key policy rates PHCBIR=ECI by 225 bps this year to tame inflation and slow the peso’s decline.

It is concerned the peso’s weakness could further fan inflation, which hit a four-year high of 6.9% in September, well outside the central bank’s 2% to 4% target.

While the BSP prefers a market-determined exchange rate, it has to intervene to control volatility, Medalla said, adding there was “quite a bit of a buffer” to support the peso with dollar reserves if needed.

In the same forum, Finance Secretary Benjamin Diokno, a former BSP chief and a current monetary board member, said the government would not allow the peso, now at 58 to the dollar level, to overshoot 60.

Diokno said he would be willing to use around $10 billion in the fourth quarter to support the peso, if he was governor. But he stressed that the government respected the BSP’s independence.

The government’s macroeconomic assumptions are based on a peso-dollar rate of 51 to 53 for 2022 and 51 to 55 for 2023-2028.

—Reporting by Karen Lema; Writing by Enrico dela Cruz; Editing by Martin Petty and Jamie Freed