BSP hints at further rate hikes

The Bangko Sentral ng Pilipinas (BSP) on Wednesday hinted at the possibility of more policy tightening after the almost certain rate hike to be implemented on Thursday.

BSP Governor Felipe Medalla said that for the policy tightening to take a pause, food supply and petroleum prices should be addressed as the Philippines continues to import a significant chunk of these products.

"If those factors work in our direction, then food supply improves, petroleum prices fall, then we will need fewer rate hikes, possibly no more rate hikes after tomorrow, but I think one has to be quite lucky for that to happen," he said during the EJAP-SMC Economic Forum.

"Exactly how many rate hikes that will require is hard to forecast because a lot of the things that drive inflation may subside," he added.

Medalla earlier ruled out the possibility of having no movement or a 75-basis point hike in the next policy meeting scheduled for Thursday, August 18, leaving a higher chance of a tightening by 25 basis points or 50 basis points.

Earlier this month, Medalla said July’s inflation print—a fresh three-year high of 6.4%—raises the probability of a 50-basis point hike.

"As to whether there will be more rate hikes in the remaining meetings, we will not rule them out," Medalla said.

"My short answer is [that] every meeting could be a 0, 25 (bps), or even a 50 (bps), so that depends on the situation. Very hard to say what we will do next year," he added.

The governor said the central bank wants the midpoint of the inflation forecast to be below 4% for 2023 and the midpoint of the 2024 forecast to be as close to 3% as possible.

For this year, Medalla said inflation is most likely to miss the target range of 2% to 4%, as headline inflation has come in faster than expected in the past two months.

The central bank in June hiked its 2022 inflation forecast to 4.2%, before decelerating to 3.3% in 2024.

The Monetary Board of the central bank has already raised rates by a total of 125 basis points so far this year—75 basis points in an off-schedule hike in July, and 25 basis points each in May and June. —VBL, GMA News