BSP chief sees rate peaking this quarter


The Philippine central bank will likely end its monetary tightening with one or two more rate increases this quarter that will bring the key rate to around 6 percent, according to its governor.

“The most likely scenario is that the last increase is the March meeting,” Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said in an interview in his office Friday. Asked what he thinks of analysts predicting BSP’s peak rate at 6 percent from the current 5.5 percent, he said: “I think they’re most likely right.”

After delivering one of the region’s largest rate increases in the past year, the Philippines is at the tail end of its most aggressive tightening in two decades as the global outlook darkens and a stronger peso cools 14-year high inflation. Malaysia on Thursday unexpectedly held its rate steady in what could be the start of a wave of monetary pauses as Indonesia signaled it’s near peak rates.

BSP will likely continue raising at its February 16 and March 23 meetings as “inflationary expectations are still high,” Medalla said. Unlike neighbors that used subsidies to fight price pressures, the Philippines leaned heavily on monetary policy, he said.

Medalla, 72, said BSP’s credibility as an inflation-targeting central bank is on the line and he’d rather stay hawkish while inflation expectations are still high than prematurely call off tightening. Earlier this month, the governor flagged a quarter- or half-point move in February.

Monetary settings will continue to be dependent on data including domestic inflation and Federal Reserve actions, Medalla said Friday, adding that he thinks some of BSP’s other board members are “more hawkish than I am.”

Once the central bank is done increasing rates, a 200-basis-point cut in the reserve requirement ratio (RRR) from the current 12 percent is on the table, he said. “The moment it’s clear we’re not raising anymore and therefore we will not be confusing the market, then we’ll cut” RRR, most likely before his term ends in the middle of the year.

BSP expects inflation to slow to within its 2 percent to 4 percent target in the third quarter and slightly below 2 percent in early 2024, Medalla said.

A peso that has advanced 8 percent against the dollar since slumping to a record low in October, could also help arrest price gains in a nation that imports goods including fuel and rice. Weeks ago, a kilo of onion was selling for nearly $12, more expensive than meat.

“The strong dollar period is over unless there is a drastic change,” Medalla said. “We are giving the peso some room to appreciate, but we will buy opportunistically” to build up currency reserves.

The long-time economics professor isn’t a fan of a strong currency. “Excessive appreciation is bad for the economy,” he said. The peso pared its gain to 0.2 percent on Friday after rising as much as 0.4 percent earlier.

“Dovish signals and the BSP cautioning on a too-strong currency would provide some support to the USD/PHP after the sharp declines in recent weeks,” said Michael Ricafort, chief economist at Rizal Commercial Banking Corp. in Manila.

The Philippines won’t suffer from recession, Medalla said, predicting a worst-case scenario of 5 percent GDP growth this year. President Ferdinand R. Marcos Jr. this week said the economy will probably keep growing about 7 percent in 2023 despite a bleaker global outlook.

The government will report fourth-quarter GDP on January 26. Bloomberg News