Lead Philippine Central Banker Sees the Possibility of Slow Rate Increases in 2023

Governor Felipe Medalla said on Tuesday that the Philippine central bank is ready to move to a slower pace of interest-rate increases as the Federal Reserve modifies its tightening campaign.

Medalla sees the need for Bangko Sentral ng Pilipinas (BSP) to do even less since the Fed’s next rate move to be a half-point increase followed by a quarter-point.

“It’s all a matter of the degree and how much to respond,” he said in an interview on Tuesday. “But not necessarily point by point.”

Medalla has been in charge of delivering the most aggressive tightening in Southeast Asia this year, with 300 basis points of moves since May to contain inflation and support the peso. BSP’s next steps will depend on the data gathered. Policymakers should also be ready to deliver big rate increases if needed.

Domestic inflation is predicted to slow to the mid-point of 2%-4% target in the second half of 2023.

The Philippine peso remains Southeast Asia’s worst performer this year but it has gained more than 2% this quarter, reducing losses after the monetary tightening and forex market intervention.

Medalla added that it’s too early to tell when the BSP may pause its policy tightening. BSP is also unlikely to change limits on banks’ foreign exchange position. The monetary authority will stick to “moral suasion” and tweak reporting requirements to manage currency volatility, he said.

Source: Bloomberg