BSP signals ‘more aggressive’ monetary policy moves ahead

BANGKO Sentral ng Pilipinas (BSP) Governor Felipe Medalla signaled readiness to unleash “more aggressive” monetary policy moves in the coming months, amid rising price and currency pressures in recent weeks.

In a message to reporters on Thursday, Medalla said the BSP is closely monitoring developments in the financial markets which have put strong depreciation pressures on global currencies, including the peso.

The new governor also said pressures on the peso, if left unchecked, could add to the “already high” domestic inflationary pressures. He also reiterated a “strong commitment” to maintaining price stability.

“Because of this, the BSP is prepared to be more aggressive in raising its policy rate, compared to its initial gradualist stance. In particular, the BSP is prepared to raise its policy rate by 50 basis points by August,” he said.

“The BSP is ready to take further policy actions, if needed,” he added.

So far, the BSP has let out two monetary policy hikes this year, both at 25 basis points each.

“To put in plain terms, it is not prudent to let factors that significantly affect the exchange rate to add further to inflation that is already high,” Medalla said.

earlier this week, the Philippine Statistics Authority (PSA) reported that inflation hit 6.1 percent in June. On Thursday, data from the Bankers Association of the Philippines (BAP) also showed the peso hitting its weakest value against the dollar in 17 years at P56.06 to a dollar.

For now, the new governor said they will continue to support and advocate non-monetary actions by other government agencies to contain any further inflationary pressures that may spill over to 2023.

According to ING Bank economist Nicholas Mapa, the more aggressive monetary tightening path might be good for the local currency in the near-term, but it’s still a long wait until the BSP’S next scheduled monetary policy meeting.

“With the Peso on its heels, the BSP has a long and nervewracking wait until August 18, or when they have a chance to offload another round of rate increases. The complication is that the Fed will by all indications hike rates by 50 to 75 bps at its July meeting, suggesting that the spread between the BSP and Fed rates could be zero for some time,” Mapa said, also noting that a possibility of an unscheduled BSP meeting might not be viewed favorably by market participants.

“Given the time-lag of policy rate adjustments, more forceful and early tightening would get the BSP ahead of the curve, re-anchor inflation expectations and hopefully quell uncertainty. Until the 18th of August, however, the Philippine peso may face additional pressure as the Central Bank awaits the chance to tighten further,” he added.