The Bangko Sentral ng Pilipinas (BSP) Governor Espenilla Jr. hinted broadly on Monday of another interest rate hike even though the policy-making Monetary Board already took the drastic step of raising the policy rates 50 basis points higher to combat high inflation.
He told the reporters while “strong action” had previously been taken to address rising headline inflation, more could still be done should the data on prices warrant another adjustment.
But Espenilla quickly brushed aside notions of an off-cycle policy adjustment as the seven-man Monetary Board is committed to follow the regular cycle of deciding which way the policy rates should go.
This pertains to that period when the Monetary Board would allow whatever policy adjustment was taken the previous six weeks to flow through the financial system before making another policy decision.
Earlier, even Finance Secretary Carlos Dominguez III rejected suggestions of such an off-cycle decision basically because none of the monetary board members is convinced that headline inflation would remain elevated over the policy horizon.
There are those who believe that inflation, acknowledged to remain elevated over that same policy horizon, should nevertheless begin to moderate.
Espenilla also said that aside from the currency risk protection program the BSP reactivated last week, “other measures” are going to be pursued.
“We’re looking at some other measures in the regulatory side to try to curb speculative activity (on the peso) which are still being studied and yet to be approved because we want to understand better how to do it,” he said.
The CRPP is a hedging mechanism that allows those exposed to foreign-exchange risks such as the country’s exporters and those who borrowed in US dollars, to mitigate the likelihood of a catastrophic foreign-exchange loss.
On these and other reforms in the foreign exchange market, Espenilla said a code of conduct already exists among foreign currency traderson how to behave in these uncertain times.
“We already actually have a code of conduct but as I have earlier described, they’re pushing for reforms in the forex market with a code of conduct that is accountable ultimately to the BSP,” he further said.
Espenilla said it should still be too early to tell how much damage typhoon “Ompong” inflicted to the country and what this means on food supply such as rice and vegetables reaching the market.
“Historically, typhoons cause disruptions in the supply but the impact tends to be localized and transitory so I don’t think it will create a problem on inflation in the long [run],” he said.