The Philippines: New Philippine Central Bank Head Signals at Least Two Hikes

• The Philippines will likely follow its interest-rate increase in May 22 with at least two more hikes to curb inflation, according to the central bank’s incoming governor.
• “It’s almost a sure thing to everyone that we will raise in Jun 22,” Felipe Medalla, a board member of the Bangko Sentral ng Pilipinas who is set to take over from Benjamin Diokno as governor on 1 Jul 22, said in an interview on 7 Jun 22. There is a “90% chance there’s another one in Aug 22. The real question is: is that the last one?”
• He said the successive hikes will lift the benchmark rate to 2.75% from 2.25% now — a level seen reached by the end of 3Q22 in the median of forecasts compiled by Bloomberg. Increases beyond that will be data-dependent, Medalla said.
• The BSP is scheduled to review policy settings on Jun 23 and subsequently on Aug 18.
• Medalla will take the helm at BSP as its rate-hike cycle picks up speed to ride out the inflation wave sweeping the world. Consumer prices rose an annualized 5.4% in May 22, data released in 7 Jun 22 showed, the fastest in more than three years and well above the bank’s 2%-4% target.
• The governor-designate also said the BSP need not move in lockstep with the Federal Reserve, saying the nature of inflation in the Philippines is different from what the US is experiencing.
• “Even if inflation is purely supply side, we are afraid there may be what we call second-round effects,” Medalla said in his first sit-down interview since accepting the nomination. Spillover inflation effects may materialize “if supply shocks are so prolonged.”
• Incumbent Governor Diokno, who will move on to become the finance secretary and continue as a member on BSP’s board, said he is on the same page with Medalla on policy rate.
• Second-round inflation has already materialized and the BSP wants to prevent a further build up, he had said earlier in the day after the latest inflation print.
• Philippines tweaked its benchmark rate for the first time since 2020
• Philippines has among Southeast Asia’s quickest inflation. The peso slid last week to three-year low, potentially further fanning costs in a country that imports commodities from crude oil to wheat.
• “Transmission of peso-dollar rate to inflation is quite low,” Medalla said, noting that the peso’s performance was better than the middle of the pack. He sees the Philippine economy growing at least 7% in 2020 on the back of rejuvenated consumer spending as it recovers from the pandemic.

External Link : https://www.bloomberg.com/news/articles/2022-06-07/successive-rate-hikes-seen-in-philippines-by-new-monetary-head