BSP flags possible rate hike in November

MANILA: The Philippine central bank isn’t ruling out a 25-basis-point interest rate hike next month as upside risks to inflation have materialised, according to central bank governor Eli Remolona.

“One thing we were worried about was transport fare hikes, and that has happened. So I wouldn’t say that we’re done with tightening,” Remolona told reporters at a briefing in Manila yesterday.

“I would say it’s a serious concern whether supply-side shocks will have a lasting impact.”

The Bangko Sentral ng Pilipinas (BSP) chief’s comments come days after September data showed inflation accelerated to a four-month high at 6.1%, surpassing all economist estimates in a Bloomberg survey.

It was driven by the fastest gain in rice prices in 14 years. Manila shortly after implemented a temporary increase in Jeepney fares on Oct 8.

Even before the Israel-Hamas war broke and added upside risk to oil prices, Remolona already signalled readiness to resume monetary tightening on or before the Nov 16 meeting should transport and power costs add to price pressures.

He said the central bank is monitoring developments in the Middle East.

The BSP has held its policy rate steady at a 16-year high of 6.25% for the past four meetings.

Still, a hike isn’t a given, as the governor has to contend with pushback from President Ferdinand Marcos Jr’s economic managers, including Finance Secretary Benjamin Diokno, who sits on the BSP’s monetary board.

The central bank had done enough after 425 basis points of rate hikes, Diokno said last Friday, a few hours after Arsenio Balisacan, also of the economic team, warned against the long-term impact of further rate increases after growth slowed in the second quarter.

Remolona said the central bank is also watching the elevated debt levels at Philippine companies, adding that “there’s some risk that some of them will not be able to pay off their loans”.

“But so far, it’s very manageable,” said the central bank governor. “We are also making sure that should there be a need for emergency liquidity by banks, we will be in a position to provide the emergency liquidity, although we don’t see any need for that at the moment,” he said.

Former BSP governor Felipe Medalla said in June that the central bank was planning to require the nation’s largest business groups to disclose their foreign debt levels due to concern that their exposure may be greater than currently estimated. — Bloomberg