BSP telegraphs another rate hike

To keep inflation in check

Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said they will use all monetary tools to keep future inflation in check as well as temper peso depreciation which has breached 154:$1 by reviving a facility for hedging.

Espenilla said in taking a “strong immediate action” for its next policy meeting they will engage the “full range of instruments in its toolkit in order to respond to the emerging threats to inflation and inflation expectations.”

He also said it is possible that they will move to issue a monetary response before the September 27 Monetary Board policy meeting. “That’s an option. We’ll see,” Espenilla said.

In mid-July, the BSP has discussed an off-cycle response after inflation rate exceeded the top end of the target in the last three months (March to May). The high inflation has continued after June until its highest level of 6.4 percent for August.

In considering an off-cycle again, the market could expect the BSP to implement a 25 basis points increase before September 27, and a follow-through similar increase during its regular monetary policy meeting. The effect, overall, should give the peso-US dollar exchange rate some breather.

BSP’s follow-through actions will respond and deal with “other threats to higher inflation such as excessive exchange rate volatility not consistent with underlying macroeconomic fundamentals in order to ensure that inflation returns to its twofour percent target over the policy horizon,” according to Espenilla.