THE UNITED STATES Federal Reserve’s aggressive tightening will put more pressure on the Bangko Sentral ng Pilipinas (BSP) to consider a bigger rate hike at its meeting next week.
The Federal Reserve on Wednesday raised interest rates by 75 basis points (bps), the largest hike since 1994, to curb soaring inflation. Fed Chair Jerome H. Powell also signaled a steep increase in their next meeting.
“Such a more substantial monetary tightening by the US Fed could affect the BSP’s announced stance of gradual normalization of monetary policy,” former BSP Deputy Governor Diwa C. Guinigundo said in a Viber message on Thursday.
The BSP is poised to raise its key interest rate at its next two meetings to address inflation, incoming BSP Governor Felipe M. Medalla said during a virtual roundtable discussion with BusinessWorld editors on Tuesday.
However, Mr. Medalla, a current Monetary Board (MB) member, signaled that the pace of subsequent tightening will be gradual as he ruled out hikes higher than 25 bps.
“While it’s true that signaling such contractionary stance should provide some forward guidance on the BSP’s policy intent and therefore inflation expectation, the size of the Fed’s adjustment could somehow enlarge the expectation by the market of the BSP’s future move,” Mr. Guinigundo said.
Rizal Commercial Banking Corp. (RCBC) Chief Economist Michael L. Ricafort said higher Fed rates may lead to further upward adjustments in the local policy rate from the current 2.25%.
“Thus, there is a chance of a local policy rate hike of +0.50 on the next rate-setting meeting on June 23, 2022 and more local policy rate hikes for the rest of the year, partly to maintain a comfortable interest rate differential with the US, to account for the comfortable spreads/interest rate differentials/risk premium — a dilemma faced by many other countries/central banks around the world,” Mr. Ricafort said in a note.
Bank of the Philippine Islands (BPI) in a press…
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