- C.bank to consider another rate hike next month
- Inflation to stay outside 2%-4% target this year and next
- Rates to stay higher for longer to tame inflation
MANILA — The Philippine central bank delivered a widely-flagged off cycle interest rate hike on Thursday, and warned another hike could be made next month if price pressures worsen as inflation was already set to overshoot targets for this year and next.
The quarter-point increase brought the policy rate, the target reverse repurchase rate PHCBIR=ECI, to 6.50% – its highest since June 2007.
Bangko Sentral ng Pilipinas Governor Eli Remolona warned that rates would have to stay higher for longer, until “sustained downward trend in inflation becomes evident.”
“I think we fell a little bit behind (in raising rates). That is the reason for this effort to catch up,” Remolona told a media briefing.
Explaining the need to take “urgent” action, Remolona said another rate hike would be considered at the next scheduled policy meeting on Nov. 16 “if things are worse than we thought.”
The central bank kept interest rates steady at its last four meetings after raising them by a total 425 basis points since May last year.
Higher costs of transport, power, fuel and wage increases have forced the central bank to abandon expectations inflation would return to its 2%-4% target for this year and next. Inflation in 2024 is now projected to average 4.7%, higher than its previous estimate of 4.3%.
In September, data from the Philippine Statistics Authority showed a double-digit gain in the price of rice drove inflation to 6.1% compared to a year ago, the highest in four months.
“Inflation expectations have risen sharply, highlighting the risk of further second-round effects,” Remolona said, adding that risks to the consumer price outlook were leaning “significantly toward the upside.”
The Philippine peso PHP= had dropped 0.2% to 56.90 per U.S. dollar by 0703 GMT, having fallen as low as 56.965 during trading before the BSP’s decision. The peso has depreciated by about 2% this year.
Soaring inflation does not bode well for the Philippines which relies heavily on consumption to power an economy, that grew at its slowest pace in nearly 12 years in the second quarter.
Remolona was unperturbed, saying policy tightening has not affected growth prospects. Whether that holds true or not will be known on Nov. 9 when the Philippines releases its third quarter gross domestic product data.
“The BSP is prepared for follow-through monetary policy action as necessary to bring inflation back to a target-consistent path, in keeping with its price stability mandate,” Remolona said.
– Reporting by Mikhail Flores, Neil Jerome Morales and Karen Lema; Editing by Kanupriya Kapoor & Simon Cameron-Moore