Raising interest rates needed against inflation — BSP

We must be a little bit more aggressive in increasing rates.

Bangko Sentral ng Pilipinas Governor Felipe Medalla said raising interest rates by 75 basis points was necessary to “bring inflation back” to its goal next year.

In a recorded speech during the 31st EJAP-Ayala Business Journalism Awards, Medalla explained that raising interest rates would also help support the Peso against the US dollar since it would prevent the gap between Philippine and US interest rates from narrowing.

“Keeping a comfortable differential between our policy rates and that of the US lends support to the peso,” Medalla explained.

BSP will meet on 17 November following statistics released on Thursday that revealed the Philippine economy grew 7.6 percent annually and 2.9 percent quarterly in the third quarter, exceeding expectations as domestic demand kept up despite rising inflation.

Medalla announced last month that he would match any rate increases made by the US Federal Reserve.

“We must be a little bit more aggressive in increasing rates,” the BSP governor told the reporters during the sidelines of a banking forum.

In October, annual inflation spiked to a nearly 14-year high rate of 7.7 percent, pushing the 10-month average rate to 5.4 percent, exceeding the central bank’s full-year objective of 2.0 percent to 4.0 percent this year.

BSP so far increased interest rates by a total of 225 basis points to 4.25 percent, the highest since 4.50 percent in June 2019, from an all-time low of two percent, to control inflation and stabilize the Peso.

“The BSP is committed to bringing inflation back to within target range over the medium term,” Medalla said.

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