The Monetary Board will raise the policy rate of the Bangko Sentral ng Pilipinas by 0.75 percentage point, to bring it to 5 percent, when they meet on Nov. 17, BSP Governor Felipe Medalla said on Thursday.
Medalla said this six hours after the US Fed announced that their target range for the federal funds rate was raised to 3.75 percent-4 percent from the 3 percent to 3.25 percent that was in place since Sept. 21.
“The BSP deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country’s exchange rate of the most recent Fed rate hike,” Medalla said.
“By matching the Fed’s rate hike, the BSP reiterates its strong commitment to its mandate of maintaining price stability by aggressively dealing with inflationary pressures stemming from local and global factors,” he added.
In the meantine, the BSP chief earlier said the tools available to the central bank for stabilizing the foreign exchange rate go beyond unloading international reserves to intervene in the currency market. This was taken as a signal of the central bank’s leaning toward a big hike in the policy rate this month.
On Wednesday, the Philippine peso depreciated by 50 centavos to close at 58.47:$1 after firming up to 57.97:$1 in the previous trading day.
The peso strengthened to the 57:$1 level after five weeks at 58:$1 and weaker, hitting its record weakest position against the US dollar four times in October.
Medalla said that with the BSP’s expanded toolkit, the central bank was indeed now using its reserves, selling dollars to help manage foreign exchange movements.
But the BSP chief stressed that the central bank was doing so only to reduce the volatility and not with the aim of shepherding the exchange rate to any certain level.
Medalla added that, while the BSP’s reserves have been decreasing over the past months, the central bank may tap other sources of dollars.
As of the end of September, the BSP’s gross international reserves (GIR) was pegged at $93 billion, down by $4.4 billion from $97.4 billion at the end of August.
The GIR reached an all-time high of $110.12 billion in December 2020, and has been decreasing month after month since $107.8 billion last February.
Medalla said the GIR was supported by steady inflows of foreign exchange from overseas Filipino remittances, business process outsourcing, and foreign direct investments.
“The tools that we can use for intervention are much larger than our reserves,” he said.
Earlier, Medalla — as well as Finance Secretary Benjamin Diokno who is also a member of the Monetary Board (MB) — mentioned that aside from selling dollars, the BSP was addressing the depreciation of the peso through increases in the policy rate.
Since May, the MB has raised the BSP’s overnight borrowing rate by a total of 2.25 percentage points from a record low of 2 percent.
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