Incoming BSP chief sees no need to rush rate hikes

May 26, 2022 - 7:12 PM
BSP building
Facade of the Bangko Sentral ng Pilipinas in Manila. (BSP/Released)

MANILA — The central bank has room to tighten monetary policy but there is no reason to rush raising interest rates PHCBIR=ECI with inflation mainly driven by higher cost of imports, its incoming governor said on Thursday.

Felipe Medalla, a monetary board member of the Bangko Sentral ng Pilipinas (BSP) for the past decade, was named as its next governor on Thursday by President-elect Ferdinand Marcos, who is close to completing his economic team.

Medalla, 72, will start work from July 1 and takes over from Benjamin Diokno, who has been named finance secretary in the new Marcos administration. Medalla will serve out the rest of Diokno’s term, which ends in July 2023.

“I am joining a strong group,” Medalla told Reuters, referring to Marcos’s economic team.

“I am also in an institution that has sufficient independence and tools to achieve its objectives.”

Medalla will take the helm of the BSP just as it kicked off its monetary tightening cycle this month to confront rising prices.

He said the hike in interest rates can be good news because it signals that “growth is already on solid footing.”

But while Medalla believes the economy’s strong growth affords the central bank room to tighten policy, he said there was “no reason to rush because much of inflation is imported.”

The central bank raised its policy rate by 25 basis points for the first time in over three years on May 19 to keep inflation under control. It next meets on June 23.

Medalla has a doctorate from Northwestern University in Evanston, Illinois and served under four Philippines presidents, starting with Fidel Ramos in the 1990s.

He was economic planning minister from 1998 to 2001 and aside from government posts, he was dean of the University of the Philippines’ School of Economics and has served as a director on the boards of several companies.

Additional reporting by Neil Jerome Morales; Editing by Martin Petty