BSP to raise key rates by 25-50 bps next month

Bangko Sentral ng Pilipinas Governor Felipe M. Medalla on Tuesday, July 26, signalled another 25 to 50 basis points policy rate hike on Aug. 18, which will raise the policy rate to 3.50 percent or 3.75 percent by next month.

“On the one hand, the current drop in the price of oil below $100 signals that there’s less a need for rate hikes. On the other hand, the US is surely going to raise its policy rate by 75 bps. We are in a situation where the US policy rate and the Philippine policy rate have very little difference between the two, and like it or not, the US dollar is the safe haven currency.

“If you are to bet on four numbers: zero, 25, 50, 75. You can rule out – just like in diving – the slowest and the highest. My guess is, come this August meeting, we can rule out zero and 75,” said the BSP chief. “ inflation begetting more inflation. What we call second order effects. That’s what monetary policy is looking at. You have to balance because if we raise too much, the economy weakens to the point that it’s actually bad for banks, and bad for people,” said Medalla.

“We had to act because what we’re afraid of is this imported inflation will have a life of its own and start a self-fullfilling prophesy of prices are rising because prices are rising. So, we increased the policy rate three times. However, when you look at it, our monetary policy is still very supportive of economic growth. Indeed the policy rate which used to be a record low two percent, is now 3.25 percent.

Medalla remains “very” optimistic that the monetary policy and credit supply will continue to be supportive of growth and financial stability.

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