Medalla discounts cut in BSP's key rates, cites Fed factor

By Joann Villanueva

June 27, 2023, 9:17 pm

<p>Bangko Sentral ng Pilipinas Governor Felipe Medalla <em>(PNA file photo)</em></p>

Bangko Sentral ng Pilipinas Governor Felipe Medalla (PNA file photo)

MANILA – Domestic inflation rate developments play the primary factor for the Monetary Board’s (MB) latest policy decisions but Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said this is not enough to slash the key rates.

In an interview on Tuesday, Medalla, who is also the head of the seven-man policy-making MB of the BSP, said “there are still many risks.”

He said that while monthly inflation rate is forecast to return to within the government’s 2 to 4 percent level as early as October this year, “we still have to wait for more data points.”

Medalla said the other factor “that complicates it is we don’t know what the US is going to do.”

“…The foreign exchange market is very sensitive to the narrowing of the interest rate differential,” he said. “Small changes in the exchange rate, we can ignore. But large changes, we cannot.”

The need to help address the elevated inflation rate in the country was the initial factor for the hikes in the BSP’s key rates since May 2022, which now totals to 425 basis points.

The BSP also cited the impact of the Federal Reserve’s key rates hikes on the local currency, which posted its record-lowest against the US dollar of 59.00 starting in late September 2022 until the following month.

Medalla said the peso has started to stabilize against the US dollar, with the unit now trading at 55-level against the greenback.

BSP’s key rates have been maintained in the last two consecutive rate setting meeting of the MB in May and June.

Monetary authorities have indicated the likely keeping of the key rates unless there are inflationary shocks and other factors that will require adjustments in the policy rates. (PNA)