Medalla Signals Gradual Tightening – BusinessWorld Online

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FELIPE M. MEDALLA / COURTESY OF BANGKO SENTRAL NG PILIPINAS

THE central bank of the PHILIPPINES is expected to raise its policy rate at its next two meetings to curb inflation, but the pace the tightening will be gradual, with its new leader ruling out hikes above 25 basis points (bps).

“We have already signaled that it is certain that we will increase the key rates next week (June 23) and that we will probably continue with an increase in the key rates by August,” said the new governor of Bangko Sentral ng Pilipinas (BSP). Felipe M. Medalla said during a virtual roundtable with Business world editors Tuesday.

Medalla, who is currently a member of the Monetary Council and will serve as BSP Governor Benjamin E. Diokno’s remaining term from July 1, said any rate hikes after the Aug. 18 meeting will be data dependent.

“Depending on the data, it may be four or Ifno more. According to the data, a little more in 2023,” he added.

There are IfFive more meetings of the Monetary Council are scheduled for this year – June 23, August 18, September 22, November 11 and December 15.

When asked if the BSP would consider rate hikes greater than 25 basis points, he replied, “I personally don’t like 50 basis points. It signifiesIfes we know something bad that you don’t. It could be misinterpreted, like “wow, what does the central bank know that we don’t?”

Mr. Medalla said BSP still has the “luxury of time and great reserves.”

“If the markets think we are late, they will attack the peso,” he said. “Luckily the need to look more hawkish than we should be isn’t there. Right now we’re trying to balance to make sure we don’t miss ourflsupply targets next year, given supply shocks.

The Monetary Board kicked off its tightening cycle by raising the policy rate, the BSP’s overnight repo facility yield, by 25 basis points to 2.25% at its May 19 meeting to temper the rise in inflation. Interest rates on the deposit and overnight loan facilities were also raised to 1.75% and 2.75%, respectively.

It was the first increase in borrowing costs since 2018 and followed cuts worth 200 basis points in 2020 as BSP took steps to support the economy amid the coronavirus pandemic. coronavirus.

Inflation accelerated to 5.4% in May, the highest in three and a half years and above the BSP’s target range of 2-4%.

Last month, the BSP raised its estimate of average inflation to 4.6 percent this year, higher than the previous estimate of 4.3 percent. In 2023, inflation is projected at 3.9%, also higher than the previous estimate of 3.3%.

“(Based on) our calculations, the probability of it exceeding the 2-4% target next year is 47%, so that’s unacceptable. We’re an inflation-targeting central bank. We cannot remedy what has already happened, the price shocks… (But) we will do our best (to make sure) that demand is not excessive and inflationary expectations are not unanchored” , Mr. Medalla said.

Medalla also played down concerns that policy tightening would hamper the Philippines economy’s post-pandemic recovery.

“Now the question is will this kill growth? My answer is no. Because when your expected inflation is above 3% and the policy rate is below 3%, in real terms, that’s still very low interest rates,” he said.

Economic managers are targeting gross domestic product (GDP) growth of 7-8% this year.

“2022 is going to be a year of strong growth, just because of the huge pent-up demand. What’s happening in the Philippines is that the relaxation of all these restrictions on the movement of people is more powerful than any stimulus you you might think,” Mr. Medalla said.

Most parts of the Philippines are under the most relaxed coronavirus alert level since March.

However, health experts have warned that daily coronavirus infections in Metro Manila and neighboring areas could reach up to 500 by the end of June.

The full video of the panel discussion with Mr. Medalla will be broadcast on Business worldthe facebook page at 11 a.m. June 20. Keisha B. Ta-asan

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