BSP matches US Fed rate hike

PHILIPPINES - In Brief 17 Nov 2022 by Romeo Bernardo

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The Monetary Board formally approved today the 75bp increase in the BSP’s set of policy rates that Governor Felipe Medalla announced two weeks ago. The increase brings the overnight reverse repurchase rate to 5%. In his statement, Governor Medalla acknowledged that the action is aggressive but necessary to “insulate the economy from external headwinds and exchange rate fluctuations that could further entrench price pressures and potentially dislodge inflation expectations.” The BSP increased its inflation forecasts for 2022 (from 5.4% to 5.8%) and 2023 (from 4% to 4.3%), expecting the headline rate to return within target by 2024 (3.1%). Officials noted that the BSP forecasts are below analysts’ expectations of 5.9%, 4.9% and 4% respectively for the three years. While emphasizing the need for non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices, Governor Medalla warned against proposals to cut taxes. He said such moves could backfire if they lead to loss of fiscal credibility and increase assessments of the sovereign’s credit risk. Asked about future monetary policy actions, Governor Medalla declined to say whether authorities will continue to match Fed policy actions, saying instead that moves will be “data dependent”.