The Philippines: BSP unlikely to move in lockstep with Fed

  • THE Bangko Sentral ng Pilipinas (BSP) does not have to follow the US Federal Reserve’s rate hike, but is keeping a close eye on inflation risks, BSP Governor Benjamin E. Diokno said.
  • “We do not necessarily have to move in pace with the monetary policy adjustments of the US Fed,” Mr. Diokno said.
  • “I would like to reiterate that the BSP calibrates its monetary policy settings in response to external developments only to the extent that they influence the outlook on growth and inflation,” he added.
  • Before the Fed announcement, Mr. Diokno said the BSP would remain patient and was still looking to start adjusting interest rates only by 2H22 to ensure sustained economic recovery. The first policy review in the second semester is scheduled for 23 Jun 22.
  • Former BSP Deputy Governor Diwa C. Guinigundo said the Fed’s move came with officials’ full recognition that US inflation was already too high and labour market was already tight.
  • He noted the BSP has also assessed a scenario where inflation could reach 4%-4.7% if oil prices remain above USD120 per barrel on a sustained basis.
  • “The BSP’s baseline forecast of 3.7% [for 2022] is actually already nearing the upper end of the 2%-4% inflation target. That should warrant a monetary policy response especially since economic growth has been alleged to be robust and resilient,” Mr. Guinigundo said.
  • “Keeping a negative real policy rate has its own financial stability risks that could lead to de-anchored inflation expectations, capital reversal and peso depreciation,” he added.

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