FOLLOWING the headline inflation rate last month, reaching a fresh three-year high of 6.4 percent, Governor Felipe Medalla hinted on Friday that the Bangko Sentral ng Pilipinas (BSP) might increase interest rates aggressively once more.
He announced during a forum organized by the Federation of Filipino Chinese Chambers of Commerce and Industry Inc. that the most recent inflation reading clearly “raises the probability” of a central bank rate hike of 50 basis points (bps) “rather than 25 [bps].”
Medalla, however, said if external development suddenly improves, he could not rule out the possibility of a considerably smaller rate increase of 25 bps.
“For instance, if the news tomorrow say that OPEC oil prices have gone to $80 [per barrel], of course, that’s wishful thinking. It [rate hike] goes toward 25 rather than 50 [bps],” he explained.
OPEC is the Organization of the Petroleum Exporting Countries.
Philippine monetary authorities see the average price of crude oil to be around $106.30 per barrel this year, $95.30 per barrel in 2023 and $84.10 per barrel in 2024. These are higher than the previous batch of forecasts, which put the prices for 2022 and 2023 at $100.04 and $89.50, respectively, per barrel.
High oil prices are one of the reasons the BSP announced an off-cycle 17-bps-rate increase last July 15 after two consecutive 25-bps-rate rises in May and June, along with peso depreciation and other external factors.
The central bank’s overnight borrowing, deposit and lending rates currently stand at 3.25 percent, 2.75 percent and 3.75 percent, respectively.
Medalla has expressed confidence in the economy’s ability to support the tight monetary policy that the Bangko Sentral has been enforcing to reduce inflation.
Its policymaking Monetary Board expects it to average 5 percent, up from 4.6 percent previously and exceeding the 2- to 4-percent target.