With a higher July inflation of 6.4 percent, Bangko Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said Friday, Aug. 5, that a 50 basis points (bps) benchmark rate increase from 3.25 percent to 3.75 percent this month is probable.
“Clearly that raises the probability (of 50 bps) rather than 25. But again there are other data that we will look at,” said Medalla when asked if the higher July inflaton has increased the likelihood of a bigger rate hike of 50 bps.
Previously, he has signalled that come Aug. 18, the Monetary Board which he chairs, will adjust the policy rate higher by either 25 bps or by 50 bps.
“(We’re) looking at all the variables and weighing them all carefully,” he said during a forum hosted by the Filipino Chinese Chambers of Commerce and Industry.
The BSP has so far increased the policy rate by 125 bps. Its initial lift off were two 25 bps rate hikes last May 19 and June 23, followed by an off-cyle 75 bps last July 14. The next policy meeting is on Aug. 18. Following the three rate increases, the peso-US dollar rate volatility is expected stabilize further as well as to reanchor inflation expectations.
The BSP in a statement Friday following the announcement of a 6.4 percent July inflation said the monetary policy rate increases will help moderate inflation expectations.
The latest inflation is at the top range of the BSP’s forecast of 5.6 percent to 6.4 percent, and higher than its midpoint projection of six percent.
Other than the July inflation rate, the BSP will also await the Aug. 9 report of the second quarter GDP results. Medalla expects the next GDP report to be between eight percent and nine percent, or near the 8.3 percent first quarter GDP growth.
As of June 23, the BSP’s average inflation forecast for 2022 is five percent, 4.2 percent for 2023 and 3.3 percent in 2024.
Medalla said last week that with the 125 bps adjustments to the policy rate since May, the inflation outlook suggests a return to within the target range of two percent to four percent next year instead of 2024. The BSP is expected to revise lower the 4.2 percent 2023 forecast this month and eyeing a below-four percent average next year.