MANILA – In an
off-cycle move on Thursday, the Bangko Sentral
ng Pilipinas’ (BSP) Monetary Board raised policy
rates by another 25 basis
points amid expectations
that inflation will continue
to be above target until
the first half of 2024.
“At its regular
meeting earlier today, the
Monetary Board decided
to take off-cycle action to
raise the BSP’s target reverse repurchase (RRP)
rate by 25 basis points
to 6.50 percent, effective
tomorrow, Oct. 27, 2023,”
BSP Governor Eli Remolona Jr. said at a press
briefing.
Following the
hike, interest rates on
the overnight deposit and
lending facilities will be
set to 6 percent and 7 percent, respectively.
“The Monetary
Board recognized the
need for this urgent monetary action to prevent supply-side price pressures
from inducing additional
second-round effects and
further dislodging inflation
expectations. The latest
baseline projections point
to an elevated inflation
path over the policy horizon as upside risks continue to manifest,” he said.
Since May last
year, the BSP has so far
hiked policy rates by a total of 450 basis points in a
bid to bring inflation back
within the target range.
Remolona said
the BSP expects headline
inflation to remain elevated until the first half of next
year and go down to within the government’s 2 to
4 percent target range by
the third quarter of 2024.
“I think beyond
July, it will head back towards the middle of the target range or somewhere
around 3 percent and will
stay around that region for
the rest of 2024,” he said.
Headline inflation
picked up to 6.1 percent in
September.
Remolona admitted that personally, he
thinks the Monetary Board
should have adjusted
rates sooner.
“I think we fell a
little bit behind. That’s the
reason for this effort to
catch up. I don’t know if the
rest of the Monetary Board
agrees with that. We didn’t
look closely enough at expectations,” he said.
Remolona said
they are worried about the
results of the household
expectation survey which
showed that about 92 percent of consumers think
that inflation will be above
4 percent in the next 12
months.
“It’s similar for
expectations by firms.
That’s very worrisome to
us because as you know,
monetary policy cannot
control supply side price
shocks. But it can serve
to break the link between
those supply side shocks
and expectations and also
the link between those
supply side shocks and
second round effects, including for example transportation fare hikes and
minimum wage increases.
So that’s what we worry
about. That’s what we focus on,” he said.
Remolona said
the balance of risks to
the inflation outlook still
leans toward the upside
due mainly to the potential
impact of higher transport
charges, electricity rates,
international oil prices and
minimum wage adjustments in areas outside the
National Capital Region.
He also did not
rule out the possibility of
another rate hike once the
Monetary Board meets on
Nov. 16.
“We will consider
it if things are worse than
we thought. We’re hoping
that the data are nicer to
us but if not, we will have
to consider a further rate
hike,” Remolona said.
The October
2023 headline inflation
data will be released early
next month ahead of the
Monetary Board’s meeting.
Remolona said
the move on Thursday, the Bangko Sentral
ng Pilipinas’ (BSP) Monetary Board raised policy
rates by another 25 basis
points amid expectations
that inflation will continue
to be above target until
the first half of 2024.
“At its regular
meeting earlier today, the
Monetary Board decided
to take off-cycle action to
raise the BSP’s target reverse repurchase (RRP)
rate by 25 basis points
to 6.50 percent, effective
tomorrow, Oct. 27, 2023,”
BSP Governor Eli Remolona Jr. said at a press
briefing.
Following the
hike, interest rates on
the overnight deposit and
lending facilities will be
set to 6 percent and 7 percent, respectively.
“The Monetary
Board recognized the
need for this urgent monetary action to prevent supply-side price pressures
from inducing additional
second-round effects and
further dislodging inflation
expectations. The latest
baseline projections point
to an elevated inflation
path over the policy horizon as upside risks continue to manifest,” he said.
Since May last
year, the BSP has so far
hiked policy rates by a total of 450 basis points in a
bid to bring inflation back
within the target range.
Remolona said
the BSP expects headline
inflation to remain elevated until the first half of next
year and go down to within the government’s 2 to
4 percent target range by
the third quarter of 2024.
“I think beyond
July, it will head back towards the middle of the target range or somewhere
around 3 percent and will
stay around that region for
the rest of 2024,” he said.
Headline inflation
picked up to 6.1 percent in
September.
Remolona admitted that personally, he
thinks the Monetary Board
should have adjusted
rates sooner.
“I think we fell a
little bit behind. That’s the
reason for this effort to
catch up. I don’t know if the
rest of the Monetary Board
agrees with that. We didn’t
look closely enough at expectations,” he said.
Remolona said
they are worried about the
results of the household
expectation survey which
showed that about 92 percent of consumers think
that inflation will be above
4 percent in the next 12
months.
“It’s similar for
expectations by firms.
That’s very worrisome to
us because as you know,
monetary policy cannot
control supply side price
shocks. But it can serve
to break the link between
those supply side shocks
and expectations and also
the link between those
supply side shocks and
second round effects, including for example transportation fare hikes and
minimum wage increases.
So that’s what we worry
about. That’s what we focus on,” he said.
Remolona said
the balance of risks to
the inflation outlook still
leans toward the upside
due mainly to the potential
impact of higher transport
charges, electricity rates,
international oil prices and
minimum wage adjustments in areas outside the
National Capital Region.
He also did not
rule out the possibility of
another rate hike once the
Monetary Board meets on
Nov. 16.
“We will consider
it if things are worse than
we thought. We’re hoping
that the data are nicer to
us but if not, we will have
to consider a further rate
hike,” Remolona said.
The October
2023 headline inflation
data will be released early
next month ahead of the
Monetary Board’s meeting.
Remolona said
the Monetary Board will
closely monitor the impact
of the increase in interest
rates as this work its way
through the economy.
“The tightening,
as far as we can tell, has
not really affected growth
prospects. GDP (gross
domestic product) growth
seems to be slowing down
because of pent-up demand waning,” he said.
The BSP projects
the Philippine economy to
grow by 4.5 percent in the
third quarter of the year,
slightly higher than the 4.3
percent expansion in the
second quarter. (PNA)
