Metrobank expects 50-bp rate hike, launches f inancial education e-book

AN OFFICIAL from the Metropolitan Bank & Trust Co. (Metrobank) forecasts another 50-basis-point (bp) rate increase by the Philippine central bank in response to the US Federal Reserve’s aggressive monetary tightening this week.

In an interview with journalists on Wednesday, Metrobank Head of Financial Markets Sector Fernando Antonio A. Tansingco said the Bangko Sentral ng Pilipinas (BSP) will have to indirectly respond to the US central bank’s rate hike to support the peso.

“The high US interest rates [are] pushing the US dollar, weakening the peso, and the BSP has to react to that,” Mr. Tansingco said, adding that there could be inflationary effects due to the weakening of the local currency.

The local unit closed at P58 against the greenback on Wednesday, shedding 52 centavos from its P57.48 finish on Tuesday, Bankers Association of the Philippines data showed.

Year to date, the peso has weakened by 13.72% or P7 from its P51-per-dollar close on Dec. 31, 2021.

This is as investors have priced either another 75-bp or a 100-bp increase by the Federal Open Market Committee at its Sept. 20-21 policy meeting. The Fed has raised benchmark rates by 225 bps since March as it seeks to rein in rising prices.

“BSP is not really targeting the exchange rate. They’re doing inflation targeting. So, at a certain point, if the currency is too weak, then it will flow through inflation,” Mr. Tansingco said in a mix of English and Tagalog.

Latest data from the Philippine Statistics Authority showed the consumer price index climbed 6.3% year on year in August, from the nearly four-year high of 6.4% in July. It remained significantly higher than the 4.4% seen in August 2021.

August marked the fifth consecutive month that inflation exceeded the BSP’s 2-4% target range for the year.

“Inflation is still way higher than our overnight rates are now. So they really have to address it at this point in time,” Mr. Tansingco said.

The Philippine central bank is widely expected to fire off another 50-bp increase on Thursday as the US Federal Reserve is also expected to further tighten policy this week. The BSP Monetary Board on Aug. 18 raised benchmark interest rates by 50 bps, bringing cumulative increases so far to 175 bps since May. —