No more jumbo rate hikes – Medalla

BANGKO SENTRAL ng Pilipinas (BSP) is ruling out another jumbo rate hike as it expects the US Federal Reserve to slow the pace of tightening in December.

BSP Governor Felipe M. Medalla said Tuesday that the policy decision at its Dec. 15 meeting will depend on the final move by the Fed, which will hold its meeting on Dec. 14-15.

“My reading is that the US will continue to raise (rates) but not 75 (basis points), so it will be less painful for economic growth in the Philippines,” he said. by FinTech Alliance.PH.

“But the outlook is that maybe the US will just do 50 and 25, of course I could be wrong. I think they (completed at 75 bps) and so do we.

If the Fed hikes 50 bps, Mr. Medalla said the BSP may not openffkeeping rates unchanged.

The US central bank has raised rates by 375 bps since March, including a fourth rate hike of 75 bps earlier this month, bringing the benchmark rate to a range of 3.75-4%.

Last week, the BSP raised its benchmark rate by 75 bps to 5% – the highest in nearly 14 years. It has hiked rates by 300 bps since May to tame inflation.

Mr. Medalla said the next policy move by the Monetary Board will also depend on the latest inflation data.

Headline inflation stood at 7.7% in October, marking the seventh straight month that inflation breached the BSP’s 2-4% target range. In 10 months, inflaveraged 5.4%, still below the BSP’s revised full-year forecast of 5.8%.

Mr Medalla said it was too early to say whether the BSP would stop monetary tightening as of next year.flIt is expected to still be above the target in 2023.

“Are we sure that inflation will return to 2% (target) by the second half of next year?” “If inflation lasts longer than that, it may frustrate inflation expectations.”

“What worries us is the latest survey of analysts and economists, which shows that the average inflation forecast is much higher than ours. It is higher than 3%. This is significantly higher than 4% for next year. As long as they believe it will be between 2% and 4%, maybe closer to 3% by the second half, that’s fine,” he added.

In 2023, the BSP sees average inflation settling at 4.3%, easing to 3.1% in 2024.

According to the BSP chief, his latest policy adjustments will help to avoid long-term supply shocks.

Mr. Medalla said that there is no other needff– circular movement.

“I think we will be able to control the secondary effects and when that happens, if there are no new shocks in the second half (next year)…wala na ‘yung (will not) addflation,” he said.

Meanwhile, former BSP deputy governor Diwa C. Guinigundo said she believes the central bank is on the right track.

“Although we can be diffconstant business and financial cycles, US Fed interest rate moves virtually dictate the pace and scale of monetary policy for many relevant economies,” Mr. Guinigundo said in a Viber message.

“Otherwise, if there is no appropriate response, we may see another devaluation of the peso.flational results,” he said, adding that the BSP should be vigilant in monitoring macroeconomic developments.

Mr Guinigundo said tackling inflation could be less difficult next year.

“Next year, we should reap the benefits of this year’s tightening response. These major moves have somewhat compensated for the time lost in the delayed policy response,” he said.

“The good economic result for the third quarter shows that the economy is resilient enough to absorb the tightening monetary policy and weaken those in the economy.flsionary pressures,” he added.

The Philippine economy grew 7.6% in the third quarter, faster than the revised 7.5% in the second quarter. The growth in the first three quarters of the year was 7.7% on average.

Emilio S. Neri, chief economist at the Bank of the Philippine Islands, said close engagement with the US Federal Reserve is necessary until inflation is contained.

“Otherwise, the authorities may be forced to further use non-market-based policy instruments to stabilize (the foreign currency) alongside domestic prices. Philippines aff(until the second half of 2023) to slow down their growth as wellflTrends suggest a return to the target by 2024.”

“However, if external and domestic factors lead to continued above-target pressures through the end of 2023, our central bank’s inflation targeting may not have room for immediate easing of policy parameters,” he said.

Mr. Neri added that the authorities should consider rebuilding the country’s dollarffbefore tightening its existing policy.

By the end of October, the country’s total international reserves reached $94.1 billion, which is 1.9% more than $93 billion at the end of September. This is 12.8% less than the dollar reserves of $107.89 billion at the end of October 2021. — Keisha B. Ta-asan