Bangko Sentral ng Pilipinas Governor Eli Remolona, Jr. | PHOTO: Official facebook page of the Department of Finance
MANILA -The Bangko Sentral ng Pilipinas’ (BSP) policy rate may be raised before the Monetary Board’s (MB) meeting on Nov. 16, and may happen as early as Oct. 26 or four weeks early, according to MB chair and BSP Governor Eli Remolona Jr.
Remolona told journalists in a chance interview on Tuesday that “an off-cycle move is on the table at the moment.”
In fact, he was on his way to a meeting where they will look at relevant data, which he said will inform policymakers whether the benchmark rate should go higher further.
“If the data says inflation will go up very significantly and there’s a risk of affecting inflationary expectations, then we may go for an off-cycle hike as early as Thursday [this week],” Remolona said. “It may also be next week.”
He declined to say how much the possible off-cycle hike might be.
‘Most aggressive’
The BSP has gone through what is considered the most aggressive monetary policy tightening cycle in the region, having raised its overnight borrowing rate by a total of 4.25 percentage points (ppt) to 6.25 percent from 2 percent.
This happened through a span of 11 months, from May 2022 to March 2023. Since then, the MB had decided to keep the policy rate unchanged during three consecutive policy meetings held last May, June and August.
The last time that the MB decided on an off-cycle move was in July 2022, by 0.75-ppt hike from 2.5 percent to 3.25 percent, at a time when overall inflation had been rising month after month during the previous five months.
Back then the BSP said the policy rate was raised considering that “a significant further tightening of monetary policy was warranted by signs of sustained and broadening price pressures amid the ongoing normalization of monetary policy setting” in other countries like the United States.
Felipe Medalla, who was then the MB chair and BSP Governor, explained that favorable conditions arising from the strong rebound in the growth of the Philippine economy so far that year suggested that the domestic economy can accommodate a further tightening of monetary policy settings.
By then, the Philippine economy had regained prepandemic levels, growing at 8.3 percent year-on-year in the first quarter of 2022.
Medalla said that in taking urgent action, the MB was aiming at keeping expectations about inflation’s trajectory close to — or “anchored” to — the government’s forecast and target range.
On the current potential off-cycle hike, ING Bank senior economist Nicholas Mapa earlier said a 0.25 percentage point increase to 6.5 percent seems to be set and is “only a matter of timing.”
Mapa observed that additional tightening of the Bangko Sentral ng Pilipinas monetary policy would serve to tame the outlook on inflation — which has revved up again in August and September — for next year.
He said the BSP will possibly raise its policy rate after the October inflation report, a still potential Fed rate hike or at the November BSP policy meeting,” Mapa said.
The US Fed meets on Oct. 31 to Nov. 1 while the Philippines Statistics Authority is scheduled to come out with the October inflation readout by Nov. 7. Either case would be an off-cycle move ahead of the Nov. 16 MB meeting.