MONETARY Authorities remain hawkish but are unlikely to order a significant rate hike at their next meeting in March, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said.
“[T]The most likely scenario is another rise,” Medalla told reporters on Friday on the sidelines of the annual BSP reception for the banking community.
“I’m not ruling out anything, but if you look at [adjustments of] zero, 25, 50 and 75 [basis points]extremes are less likely,” he also said.
The policy-making central bank Monetary Board raised BSP interest rates by 50 basis points (bps) earlier this month, driven by higher-than-expected inflation in January to a new 14-year high of 8.7%.
Key rates have been raised by a total of 400 basis points since May last year as inflation surged after Russia’s invasion of Ukraine. They included two adjustments of 75 basis points: an off-cycle in July and another during the scheduled November policy meeting.
Another rise of 75 basis points is unlikely because the main driver for inflation, according to Medalla, is not demand, but “second-order effects” where “prices rise because previous increases affect future increases.”
The BSP chief said he still “hopes to be pleasantly surprised” when the February results are released next week, but added that if the data is “poor, we will act.”
The central bank will announce its inflation forecast for February tomorrow, Feb. 28, while official data will be released by the Philippine Bureau of Statistics on March 7. The data will be reviewed by the Monetary Board at its next meeting on March 23.
The overnight buyback, deposit and lending rates of BSP are now 6.0%, 5.5% and 6.5% respectively. The last time the discount rate reached 6.0% was in August 2008 during the global financial crisis.
Some analysts expect the overnight buyback rate to reach 6.5% this year and the monetary authorities to take a break due to policy tightening in the second half of the year.
At its February 16 meeting, the Monetary Board also raised its inflation forecast for 2023 to 6.1 percent from 4.3 percent, above its target of 2.0 percent to 4.0 percent. The forecast for 2024 is kept at 3.1 percent.
Medalla said he remains optimistic that monthly inflation will fall below 4.0% by November or December this year, especially if non-monetary measures start to work.
In a report released last week, BSP said the revision to the 2023 outlook was “mainly driven by a higher-than-expected inflation result in the fourth quarter (Q4) of 2022 and a higher guidance forecast for the first quarter (first quarter) of 2023 due to higher food prices. , utilities, and transportation, as well as more pronounced second-order effects on rents and restaurants.”
“The uptick in the projected trajectory also reflects the forecast for faster GDP (gross domestic product) growth for 2023,” it added.
“These growth drivers were partially offset by lower global crude oil prices, currency appreciation and the impact of cumulative BSP policy rate adjustments.”
Consumer price growth is expected to average 7.7% in the first half of the year, slow to 5.4% in the third quarter and slow further to 3.8% in the last three months of 2023.
By January 2024, it could “decelerate closer to the lower end of the target range, mainly due to negative base effects and a likely decline in global prices for oil and other commodities.”
At the same time, GDP growth is projected to be in line with the Interministerial Committee for Development Budget Coordination (DBCC) target of 6.0-7.0 percent for 2023. The economy grew 7.6 percent better than expected last year.
The central bank, however, said economic headwinds “could lead to slower GDP growth in 2024” due to a weaker global outlook and the impact of cumulative policy rate adjustments.
DBCC, of which Medalla is a member, is targeting growth in 2024-2028 from 6.0 percent to 8.0 percent.