Philippine central bank to match Fed's 75 bps rate hike on November 17

On Thursday, the Philippine central bank signalled that it planned a 75 basis point hike in its key interest rates later this month to match the latest monetary tightening by the US Federal Reserve.

"[The Fed hike] supports the BSP's stance to hike its policy rate by the same amount in its next policy meeting on November 17," Bangko Sentral ng Pilipinas Governor Felipe Medalla said in a statement.

"The BSP deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country's exchange rate of the most recent Fed rate hike," he added.

Ruling out an off-cycle policy move, Medalla said the hike would be effective after the November 17 meeting.

Inflation in January to September averaged 5.1 per cent — well outside the central bank's 2 - 4 per cent target for 2022 — partly because of a weaker peso, that has further aggravated the cost of importing food and fuel.

By matching the Fed's rate hike, Medalla said the BSP reiterated its strong commitment to maintaining price stability by aggressively dealing with inflationary pressures stemming from local and global factors.

He cited the BSP's preparedness to "take necessary policy actions to bring inflation toward a target-consistent path", as he projected it to return to the 2 per cent-4 per cent target band in the second half of 2023 and full-year 2024.

Economists welcomed the rate hike signal, viewing it as intended to reassure markets.

"Reaction from BSP was timely and should be able to temper market reactions, namely from the foreign exchange side," said Robert Dan Roces, an economist at Security Bank in Manila.

Roces expects rate increases of 75 bps this month, and 50 bps on December 15, the last policy meeting this year.

Last month, Medalla had said that interest rates could rise by more than 100 basis points before the year-end to ease pressure on the peso: Southeast Asia's worst-performing currency that has lost 12.5 per cent against the US dollar so far this year.

The BSP has raised rates five times this year, amounting to a total of 225 bps and bringing the overnight reverse re-purchase facility rate (PHCBIR=ECI) to 4.25 per cent.

"The rate hikes so far this year have merely normalised our policy settings and aren't likely to pare growth by much," said Emilio Neri, lead economist at Bank of the Philippine Islands.

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