Philippine c.bank steps up interest rate hike, ready for more action

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  • Biggest rise since BSP’s move to inflation targeting in 2002
  • The BSP benchmark rate now at 3.25%, after successive increases
  • C.bank gov signals new policy measures to control inflation
  • The central bank will still hold the policy meeting on August 18

MANILA, July 14 (Reuters) – The Philippines’ central bank raised key rates by 75 basis points in a surprise move on Thursday and left the door open for further tightening as it scrambled to contain inflationary pressure growing and saving a tottering peso.

Implemented outside the regular cycle of policy meetings, the tightening move was the most aggressive by the Bangko Sentral ng Pilipinas (BSP) since the central bank switched to an inflation targeting approach in 2002.

The interest rate hike accompanied policy changes made by other central banks in Asia and elsewhere on Wednesday and Thursday. They included one in Singapore which was also an off-cycle move.

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In the Philippines, the main overnight repo facility rate (PHCBIR=ECI) rose to 3.25%, BSP Governor Felipe Medalla said in a statement.

“In raising the policy interest rate again, the Monetary Board recognized that a further significant tightening of monetary policy was warranted by signs of sustained and mounting price pressures in the ongoing normalization of policy settings. monetary policy,” Medalla said.

BSP’s deposit and overnight lending facility rates were also raised by 75 basis points, to 2.75% and 3.75%, respectively.

No such action was expected on Thursday as the BSP did not have a regular policy meeting scheduled until August 18. The central bank previously raised interest rates by 25 basis points in May and again in June.

Medalla said the BSP would still hold the August 18 meeting and policy action remained data dependent.

Inflation hit its highest level in nearly four years in June and is expected to largely remain elevated, pushing the full-year average above the 2-4% target range. Read more

Finance Secretary Benjamin Diokno said the economy remained robust and could thus absorb Thursday’s interest rate hike. It would remain supported by the easing of COVID-19 restrictions and structural reforms, he added. Read more

The 6.5% to 7.5% gross domestic product growth target set for this year by the newly installed Marcos administration remains within reach, BSP Deputy Governor Francisco Dakila said during a meeting. a press briefing.

Second-quarter GDP growth, to be announced on Aug. 9, “is very likely (to be) strong or even stronger than the first-quarter numbers,” he said. Read more

THE PESO RECOVERS

The Philippine peso, which hit a record low earlier in the week against the US dollar, recovered some of the lost ground and rose 0.3% for the last time.

The peso is Southeast Asia’s worst performing currency this year, with the greenback continuing to strengthen on expectations of faster policy tightening from the Federal Reserve. Read more

The Fed is seen stepping up its tightening campaign with an oversized 100 basis point rate hike this month after a report showed inflation hit four-decade highs. Read more

The BSP’s move was aimed at supporting or at least stabilizing the peso’s exchange rate, said Michael Ricafort, an economist at Rizal Commercial Banking Corp in Manila.

A weak peso adds further pressure on inflation, threatening to derail the nation’s consumer-driven recovery.

“Further rate hikes are still possible, if needed, depending on any further rate hikes from the Fed to bring down high inflation,” Ricafort said.

MORE TIGHTENING POSSIBLE

Medalla said the BSP was ready “to take the additional steps necessary to steer inflation to a path consistent with the medium-term objective.”

The central banks of New Zealand and South Korea raised interest rates by 50 basis points on Wednesday, when Canadian markets shocked by opting for 100 basis points. Read more

Singapore’s move on Thursday refocused the midpoint of an exchange rate policy range.

Malaysia’s central bank raised its benchmark interest rate for the second consecutive meeting last week. Indonesia’s central bank may raise interest rates in the current quarter to contain future pressures on core inflation, but any hikes will not be aggressive, its governor said on Friday.

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Reporting by Enrico Dela Cruz, Karen Lema and Neil Jerome Morales; Editing by Ed Davies and Bradley Perrett

Our standards: The Thomson Reuters Trust Principles.

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