BSP suggests 50bp rate hike ‘not good enough’ – Reuters

The Bangko Sentral ng Pilipinas (BSP) has hinted that another 25 basis point (bp) hike in the policy rate, which will lead to a total rate hike of 50 bp by June 23, may not be enough to restore price stability.

Outgoing BSP Governor Benjamin E. Diokno said the Monetary Board is aware that the 25 basis point adjustment to the overnight repo facility (RRP) on May 19 will not have much impact on growth momentum, and he may have indicated that raising the RRP rate to 2.5% is not the last pit stop.

In addition, Diokno’s replacement, Monetary Council member Felipe M. Medalla, agreed. “Governor Ben (Diokno) declared an additional 25 basis points in June. It makes sense,” Medalla said. “When’s the next one?” I have my guess,” he said, referring to the possibility of a policy rate hike of more than 50 basis points for 2022, as Diokno hinted, to ensure that inflation does not will not remain elevated beyond manageable expectations.

Medalla, which will take over the BSP and the Monetary Council on July 1, will support a decision to raise the key rate again on June 23. He also agreed with Diokno when he said that since the initial 25 basis point rate hike had “little” impact on GDP, the BSP will continue to assess the situation. Market analysts expect the Monetary Board to raise rates by at least 50 basis points to 75 basis points in the coming months, following the decision of other central banks and the faster growth than expected in the first quarter. After June 23, the next BSP policy meeting will be on August 18.

On Thursday, May 26, Diokno again reiterated the likelihood of the Monetary Council issuing another 25 basis point rate hike. “I have signaled that we are likely to have another 25 basis point adjustment at our next Monetary Board meeting on June 23,” Diokno said.

He said the PASB did not expect GDP growth of 8.3% in the first quarter of 2022 due to the spike in Covid-19 cases in January. “We expect Q2 (second quarter) GDP to be higher than Q1. We are already on track to meet our growth target of 7-9%. We continue to monitor the impact on the “employment which is also doing very well, it’s quite close to where we were before the crisis. Of course, we also continue to watch our inflation target because it is the main concern of the BSP,” said Diokno.

Despite the strong GDP growth at the end of March, the government recently revised the growth target for 2022 to a maximum of 8% instead of 9%. BSP also revised its inflation forecast for 2022 to 4.6% from its March 24 estimate of 4.3%. For 2023, the forecast is also higher at 3.9% compared to the previous forecast of 3.6%. The projection for 2022 exceeds the BSP inflation target by 2-4%.

Meanwhile, Diokno reiterated that when to lift BSP’s time-limited measures during the pandemic will depend on the latest economic data and will not be tied to any calendar date.

“The timing and conditions of the BSP exit strategy remain data-driven,” he said during a recent webinar hosted by the Asian Development Bank Institute.

Diokno said the exit strategy will be guided by the medium-term inflation and growth outlook, as well as the status of Covid-19 and global and local risks to the economy.

“The balancing act requires a well-planned, well-calibrated and well-communicated exit strategy to avoid causing substantial market volatility, reduce potential fallout and maintain recovery momentum,” he said. .

To support the economy during the pandemic, the BSP maintained a low policy rate of 2% from November 20, 2020 to May 19 this year. It also provided interim cash advances to the government and provided other time-limited regulatory and operational relief measures.

Prior to May 19, the last time the Monetary Board raised benchmark rates was on November 15, 2018, also by 25 basis points. In 2018, the Monetary Board increased policy rates by a cumulative 175 basis points.

Meanwhile, in 2020, the first year of the global pandemic, the BSP made a series of policy rate cuts, totaling 200 basis points, and it also cut the reserve requirement ratio by 200 basis points for large banks and 100 basis points for small banks.

On May 19, the Monetary Board also decided to raise the interest rate on the BSP’s deposit and overnight lending facilities by 25 basis points to 1.75% and 2.75%, respectively.

Diokno said the strong rebound in GDP gives them the opportunity to launch their exit strategy from monetary easing, starting with raising policy rates, returning to normal operations, improvements to the interest rate corridor system and interest and the unwinding of liquidity provisions and other regulatory relief measures.

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