Gradual BSP rate hikes get think tank nod | Inquirer Business
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Different from 2018

Gradual BSP rate hikes get think tank nod

With the Bangko Sentral ng Pilipinas (BSP) seemingly set for gradual tightening, based on signals from officials and contrary to calls from some analysts for more aggressiveness, GlobalSource Partners believes taking it slow makes sense considering the different situations in the Philippines and the United States.

GlobalSource, in a commentary, noted that incoming BSP Governor Felipe Medalla had signaled that the Monetary Board will raise policy rates—by 25 basis points, again—not only on June 23, but most likely in subsequent policy meetings.

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These signals from the BSP are in stark contrast with signals from the US Federal Reserve which has hinted at ratcheting up their own interest rates in bigger increments, such as the recent 75-bps hike, and to be followed by more.

Meanwhile, this same contrast has set some analysts on edge, worried that the narrowing interest rate difference between BSP and US Fed was eroding the value of the peso against the dollar.

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“We saw this happen in 2018 when market sentiments increasingly turned negative over perceptions that the BSP was acting too slowly to tame inflationary pressures,” GlobalSource said.

The New York-based think tank argued that the Philippine situation now was very different from what it was in 2018.

First is that inflation in the US is at a 40-year high of 8.6 percent while inflation in the Philippines is at 5.4 percent.

Second is that “locally, unlike in 2018 when the [Philippine] economy was growing robustly, domestic demand today has barely returned to its prepandemic level, with fiscal policy expected to remain expansionary,” it said.

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TAGS: Bangko Sentral ng Pilipinas (BSP), rate hikes
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