CLEAR DIRECTION. Monetary authorities' statements on the direction of central banks' key rates are expected to benefit the Philippine peso and the inflation. Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said the specific signals from transparency on the path of local policy rates will promote greater certainty on the local economy. (Photo courtesy of RCBC)

MANILA – Stability of the Philippine peso, along with the actual inflation and inflation expectations, are expected to remain given the transparency by monetary authorities vis-à-vis their rate hike moves.
After the two-day meeting of its Federal Open Market Committee (FOMC) on Nov. 2, the Federal Reserve hiked by 75 basis points its funds rate, which Rizal Commercial Banking Corporation (RCBC) chief economist Michael Ricafort said is widely expected.
The latest rate hike brought the Fed’s key rate to between 3.75 to 4 percent.
Amidst the fresh jumbo hike by the Fed, Ricafort said US monetary authorities signaled that “Fed rates ceiling would go higher (ways to go) vs. earlier estimates, but could involve smaller Fed rate hikes as early as December 14, 2022 or the one after that.”
The Fed’s statement was based on the authorities’ bid to bring the US’ four-decade high inflation rate to within its 2 percent target, noting that a pause on the current tightening bid is still premature.
Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla on Thursday hinted of another 75 basis points increase in the BSP’s key rates during the meeting of the policy-making Monetary Board (MB) on Nov. 17 to ensure enough interest rate differential with that of the US.
Ricafort said Medalla’s statement “would help stabilize the peso exchange rate (through a more comfortable interest rate differential with the US dollar), actual inflation, and inflation expectations, on top of other measures in the policy tool kit.”
“The clear and specific signals from local authorities have been unprecedented in a positive manner, in terms of greater transparency and forward-looking/guiding in nature, thereby promoting greater certainty/stability for the local economy and financial markets, as well as creating an environment more conducive for better planning and preparations for businesses/industries, consumers, other institutions, and the general public,” he said.
To date, the BSP’s key rates have been increased by a total of 225 basis points in a bid to address the impact of the elevated inflation rate, as well as help buoy the local currency against the continuous strengthening of the US dollar.
BSP’s overnight reverse repurchase (RRP) rate is currently at 4.25 percent, the overnight lending rate is at 4.75 percent, and the overnight deposit rate is at 3.75 percent.
Ricafort forecasts the BSP’s RRP rate to end the year at between 5.50 to 6.00 percent “as a function of further Fed rate hikes and the trend in the US inflation as one of the most important data being monitored, as well as the behavior of the peso exchange rate vis-a-vis other global/Asian/Asean currencies.” (PNA)