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Philippines signals more rate hikes after half-point move

·2-min read
Buildings in the Central Business District (CBD) in Makati City, the Philippines, on Tuesday, Aug. 16, 2022. The Philippine central bank will sustain its rate-hike cycle this quarter, following a surprise move in July, to quell broadening price pressures, according to a Bloomberg survey of economists. The benchmark interest rate is expected to increase by another 75 basis points to 4% by the end of September, a survey showed. Photographer: Veejay Villafranca/Bloomberg
Buildings in the Central Business District (CBD) in Makati City, the Philippines, on Tuesday, Aug. 16, 2022. The Philippine central bank will sustain its rate-hike cycle this quarter, following a surprise move in July, to quell broadening price pressures, according to a Bloomberg survey of economists. The benchmark interest rate is expected to increase by another 75 basis points to 4% by the end of September, a survey showed. Photographer: Veejay Villafranca/Bloomberg

By Siegfrid Alegado and Tomoko Sato

The Philippine central bank delivered another large interest-rate hike and signaled it has space to raise borrowing costs further to tackle broadening price pressures.

Bangko Sentral ng Pilipinas raised the overnight reverse repurchase rate by 50 basis points to 3.75%, as predicted by 16 of 22 analysts in a Bloomberg survey. That took the total increases this year to 175 basis points to rein in inflation that’s drifted above the BSP’s 2%-4% target for four out of seven months.

“The inflation target remains at risk,” Governor Felipe Medalla said in a live-streamed briefing. “Elevated inflation expectations likewise highlight the risk of further second-round effects.”

The central bank raised its inflation outlook for the year to 5.4% from 5% previously, while lowering the 2023 view to 4% from 4.2% and 2024 forecast to 3.2% from 3.3%.

Medalla said any further policy moves will remain dependent on data, as well as the Federal Reserve’s monetary actions. That signals the BSP isn’t done with rate hikes yet, given Fed officials have said they are far from controlling inflation — a line echoed by peers in the UK, Australia, South Korea and India.

What Bloomberg Economics Says...

The latest rate hike reinforced BSP’s commitment to anchoring inflation expectations. It still has a lot of work to do.

Tamara Mast Henderson, Asean Economist

Domestic consumer prices rose 6.4% in July, the fastest since late 2018, while the peso is among the worst performers in Asia this month. Accelerating price gains are weighing on consumption, which was evident from a slower-than-expected economic expansion in the quarter through June.

Still, Medalla said favorable growth conditions “gives the BSP the flexibility to act against inflation pressures,” and that price-growth will probably peak in October or November.

Philippine inflation remains well above target as pressure broadens

Against a backdrop of rising prices, “BSP can carry out 25 basis point increases at each of the remaining policy meetings” this year, said Nicholas Mapa, economist at ING Groep NV. Inflation will likely peak in October, Mapa said.

The peso was little changed after the decision, and closed at 55.89 per dollar.

© 2022 Bloomberg L.P.