Another 50bp rate hike

PHILIPPINES - In Brief 18 Aug 2022 by Romeo Bernardo
The Monetary Board today decided to increase its set of policy rates by 50bp, bringing the overnight reverse repurchase rate to 3.75% effective tomorrow. Year to date, policy rates are up by 175bp following more aggressive tightening since July in response to rising inflation. Per the BSP, inflation is now forecast to average 5.4% this year (up from 5% forecast in June), 4% next year (down from 4.2%) and 3.2% in 2024 (from 3.3% previously). Domestic inflation reached 6.4% in July. In a press conference, BSP Governor Felipe Medalla said he cannot rule out additional tightening moves in the months ahead. The decision will depend mainly on future US Fed actions and the size of the interest rate increases. He emphasized that the BSP’s primary concern is price stability, noting that it is still possible for the economy to achieve respectable growth, even if below government's 6.5%-7.5% target, with additional interest rate increases. In the same event, Governor Medalla said that the BSP is postponing its planned end-year reduction of the reserve requirement ratio (RRR) on bank deposits. Earlier, the BSP had intended to offset the tightening effect of the expiration of the reserve eligibility of loans to smaller firms, a pandemic-related measure, by reducing the RRR. Nevertheless, the governor said he remains committed to reduce the RRR before the end of his term in mid-2023.

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