Despite Neda caution, BSP to still hike rates


DESPITE the warning of the National Economic and Development Authority (Neda) on the ill effects of further monetary tightening on the economy, the Bangko Sentral ng Pilipinas (BSP) remains undeterred in its hawkish stance and still intends to raise interest rates in November.

In a briefing on Wednesday, BSP Governor Eli M. Remolona Jr. said he is not ruling out a 25-basis-point (bps) rate hike in November given the latest data, including the 6.1-percent headline inflation rate recorded in September 2023.

Inflation reached the high end of the BSP’s month-ahead inflation forecast due to more expensive rice prices which increased 17.9 percent, the highest in 14 years. (Full story here:

“We are considering hikes but we’re going where the data leads us. I don’t think Arsi’s [Neda Secretary Arsenio M. Balisacan] views and our views are that far apart. I think what Arsi really meant was we shouldn’t go for very aggressive hikes, but I wouldn’t rule out 25 basis points for example,” Remolona said.

Remolona said while headline inflation rate increased, it was worth noting that core inflation slowed. Core inflation slowed to 5.9 percent, bringing the year-to-date core inflation rate to 7.2 percent.

While this was certainly “encouraging,” Remolona said one of the BSP’s main fears was the increase in transport fares, which has already happened. The Land Transportation Franchising and Regulatory Board (LTFRB) approved the P1 jeepney fare hike which was implemented last week.

Other risks

ANOTHER risk to inflation, Remolona said, is the conflict in Israel. While the impact of this war has been muted, the risk that it will spill over to growth as well as oil prices, will make the BSP hawkish to guard against secondary effects.

“I wouldn’t say that we’re done with the tightening. I would say, it’s a serious concern whether supply side shocks would have a lasting impact. Normally, they don’t have a lasting impact, but once they get into expectations, once they get into wages, it becomes an issue for us,” Remolona said.

“Of course, we only control the demand side. And for now we think tightening has relieved pressure from the demand side. So far we think it hasn’t really affected our growth prospects. We’re watching that very, very carefully,” he added.

Last week, Balisacan said he is not in favor of further rate hikes, noting that inflation is being caused by supply side issues that jack up commodity prices. Such a situation, he said, does not call for monetary policy tightening.

He said while the economy can still withstand further rate hikes, it may be an unnecessary recourse that could hurt local producers and slow down the country’s GDP growth.

Raising interest rates would also not lead to a competitive peso, he added. Balisacan said a weak peso is what the country needs to grow faster since this will allow exporters and local producers to earn more as well as increase the purchasing power of dollar earners and their families in the Philippines.

Balisacan explained that it is a misnomer that a weak peso translates to a weak economy. On the contrary, it allows sectors such as Business Process Outsourcing (BPO) and Overseas Filipino Workers (OFWs) to have greater purchasing power.

This increase in income is good for consumption-driven economies like the Philippines. Conventionally, the bulk or 70 percent of the economy is driven by consumption, and 10 percent of this is accounted for by the consumption from overseas Filipino workers’ remittances.

Image credits: Michael Edwards |