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April 24, 2024

BSP to further raise rates in August after surprise jumbo 75 bps hike

Bangko Sentral ng Pilipinas Governor Felipe Medalla is not ruling out the possibility of additional rate hikes next month after the jumbo 75 basis points increase in a surprise off-cycle meeting last Thursday.

“We will not rule out another hike in August but of course the need to do 50 basis points is much, much less now,” Medalla said in an interview with Bloomberg Television.

The BSP earlier signaled a 50 basis points hike on the next rate-setting meeting of the central bank’s Monetary Board scheduled on Aug. 18 after the peso breached the 56 to $1 level early this week.

However, the Monetary Board held an off-cycle rate-setting meeting on Thursday where monetary authorities decided to raise key policy rates by 75 basis points.

This was the biggest since the BSP adopted an inflation-targeting framework in early 2002 and since it shifted to an interest rate corridor (IRC) system in 2016, to help manage spillovers from other countries that could potentially disanchor inflation expectations.

Together with the back-to-back 25 basis points rate hikes on May 19, the first in more than three years or since November 2018, and on June 23, this brought the benchmark rate to 3.25 percent from an all-time low of two percent.

Inflation averaged 4.4 percent in the first half of the year, exceeding the BSP’s two to four percent target range, after quickening to 6.1 percent in June from 5.4 percent in May.

Based on the last assessment of the Monetary Board last June 23, the central bank raised its inflation forecasts to five instead of 4.6 percent for this year and to 4.2 instead of 3.9 percent for next year.