Elevated domestic inflation rate was again the main factor for the upward adjustments in the Bangko Sentral ng Pilipinas’ (BSP) key rates that were hiked by 50 basis points on Thursday.
In a briefing, BSP Governor Felipe Medalla said the rate uptick will take effect this Friday and this will bring the overnight reverse repurchase (RRP) rate to 6 percent, same as in August 2008; the overnight repurchase rate to 6.5 percent and the overnight deposit rate to 5.5 percent.
“In deciding to raise the policy interest rate anew, the Monetary Board noted that the latest baseline inflation forecast path has shifted higher relative to the previous assessment,” he said.
This, as monetary authorities now see inflation averaging at 6.1 percent this year, higher than the 4.3 percent last November and way higher than the government’s 2 to 4 percent target band.
For 2024, the average is expected to slow to 3.1 percent, same as that last November.
As for private analysts, they see the path of the Federal Reserve’s key rates, the domestic inflation and the peso’s performance as expected factors on the future adjustments in the BSP’s key rates.
On Thursday, the central bank’s policy-making Monetary Board (MB) hiked the BSP’s key rates by 50 basis points, to 6 percent for the overnight reverse repurchase (RRP) rate, after noting the higher-than-expected January 2023 inflation rate of 8.7 percent, among others.
Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the latest rate adjustment in the central bank’s key rates is the eighth consecutive hike while the RRP rate, which will take effect this Friday, is the highest in more than 15 years or since July 2007.
“Local policy rates would still be largely a function of the local inflation trend as well as the future Fed rate hikes after the recent signals from Fed Chair (Jerome) Powell on possible higher peak in Fed(eral Reserve) Funds Rate especially if the US labor/employment market remains strong,” he said.
Ricafort said the BSP’s key rates would likely match future Fed rate hikes and the market expects two to three more rate hikes until June this year.
“As a result, any additional Fed rate hikes of about +0.25 each especially on March 22, 2023 and May 2, 2023 could be, at least, matched locally on the next local rate-setting meetings on March 23, 2023 and on May 18, 2022 to maintain a more comfortable interest rate differential that help stabilize the peso exchange rate and overall inflation,” he said.
Ricafort said “timeliness and size of any future local policy rate hikes would also be a function of the behavior of peso exchange rate given its impact on import prices and overall inflation.”
“So if the peso exchange rate is relatively stable, any future local policy rate adjustments would just match any future Fed rate moves in the near future,” he added.
CURRENTPH NEWS SERVICE