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BSP may match Fed if it hikes by 75 bps

A COLORFUL ARTWORK is projected on the façade of the Bangko Sentral ng Pilipinas’ head office along Roxas Boulevard, Manila. — PHILIPPINE STAR/ MIGUEL DE GUZMAN

PHILIPPINE interest rates could rise by more than 100 basis points (bps) before the year ends, the central bank governor said on Monday, in step with large rate hikes expected to be delivered by the US Federal Reserve to fight inflation.

“It could be more. It depends on what the US does,” Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla told reporters when asked if he shared the view of the Finance secretary, who earlier said key rates should rise by one percentage point before yearend.

In the United States, at least another 75-bp move is expected at the conclusion of the Fed’s next policy meeting on Nov. 1-2, with further tightening in the pipeline as policy makers try to rein in consumer prices.

Mr. Medalla, who heads BSP’s seven-member monetary policy-making board, said if the Fed hikes rates by 75 bps, he would vote to raise rates by the same magnitude, lest the peso which has lost more than 13% against the dollar this year, remains under pressure.

“We have to match it,” Mr. Medalla said separately at a business forum. “The thing we are watching the most is what the Fed will do.”

The BSP has so far raised key policy rates by 225 bps this year to tame inflation and slow the peso’s decline.

It is concerned the peso’s weakness could further fan inflation, which hit a four-year high of 6.9% in September, well outside the central bank’s 2% to 4% target.

While the BSP prefers a market-determined exchange rate, it has to intervene to control volatility, Mr. Medalla said, adding there was “quite a bit of a buffer” to support the peso with dollar reserves if needed.

In the same forum, Finance Secretary Benjamin E. Diokno, a former BSP chief and a current monetary board member, said the government would not allow the peso, now at P58-to-the-dollar level, to overshoot P60.

Mr. Diokno said he would be willing to use around $10 billion in the fourth quarter to support the peso, if he was governor. But he stressed that the government respected the BSP’s independence.

The government’s macroeconomic assumptions are based on a peso-dollar rate of P51-53 for 2022 and P51-55 for 2023-2028.

RECOVERY ON TRACKMeanwhile, Mr. Diokno said the economy is prepared to weather the looming challenges arising from an increasingly gloomy global outlook.

“Let me assure you that while the global economy may be clouded, we are prepared to weather this environment with fiscal discipline and a well-calibrated plan for fiscal sustainability,” he said in a speech at The Asset’s 17th Philippine Summit on Monday.

Mr. Diokno said domestic economic activity is picking up, while investor confidence is rising as the economy reopens.

The country’s gross domestic product (GDP) expanded by 7.8% in the first half. Third-quarter GDP data is scheduled to be released on Nov. 10.

“This suggests that our full-year target of 6.5-7.5% is very much doable,” Mr. Diokno said.

From 2023 to 2028, the government is targeting GDP growth of 6.5-8%.

“The improvements in our foreign direct investment inflows, labor market conditions, and revenue performance all send a strong signal that the country is primed for a rapid recovery,” Mr. Diokno added.

Total FDI net inflows fell by 12% year on year to $5.101 billion in the first seven months of the year.

The National Government’s revenue collections also reflected the increased economic activity. Mr. Diokno said he expects revenue collection to exceed pre-pandemic level this year, as collections reached P2.4 trillion in the first eight months.

The National Government aims to collect P3.3 trillion in revenues this year, equivalent to 15.2% of the GDP.

However, rising inflation remains a concern. Inflation quickened to 6.9% in September, driven mainly by higher food, fuel, and transport costs.

“In the near term, we will address the impact of inflation on vulnerable sectors, reduce economic scarring from the pandemic, and ensure sound macroeconomic fundamentals,” the Finance chief said. — Reuters with Luisa Maria Jacinta C. Jocson

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