Off-cycle rate hike on the table - Bangko Sentral ng Pilipinas

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An off-cycle rate hike is on the table as early as Thursday this week as monetary authorities weigh the impact of quickening inflation amid upside risks, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said yesterday.

'It's on the table, guys. An off-cycle move is on the table at the moment,' Remolona told reporters yesterday on the sidelines of the 2nd Digital Financial Inclusion Awards.

Remolona, who chairs the central bank's seven-member policy-setting Monetary Board, said the body could opt for an off-cycle rate increase as early as Thursday this week or next.

The next rate-setting meeting of the Monetary Board is scheduled on Nov. 16.

'If the data says inflation will go up very significantly and there's a risk of affecting inflationary expectations, then we may go for an off-cycle hike as early as Thursday (this week). It may also happen next week,' Remolona said.

The BSP surprised financial markets when it delivered a huge 75-basis-point hike in an off-cycle meeting on July 14 to temper mounting risks to the inflation outlook and stabilize the peso exchange rate amid the aggressive rate increase by the US Federal Reserve.

That was the biggest one-time rate hike delivered by the BSP since it adopted an inflation-targeting framework in early 2002 and shifted to an interest rate corridor system in 2016 as a framework for conducting its monetary operations.

Remolona had signaled a possible 25-basis-point rate hike next month especially if upside risks to inflation materialize.

By raising rates, the goal is to increase the cost of credit throughout the economy. Higher interest rates make loans more expensive, making both businesses and consumers spend less, resulting in a drop in demand for goods and services, and causing inflation to ease.

After easing for six straight months to a year-low of 4.7 percent in July from

a peak of 8.7 percent last January, headline inflation accelerated for two consecutive months to 5.3 percent in August and 6.1 percent in September.

This brought the average inflation to 6.6 percent from January to September this year, well above the BSP's two to four percent target range.

Earlier, monetary authorities were still convinced that inflation would ease to within the target range as early as November this year.

The BSP has maintained a hawkish pause as it left interest rates untouched for four straight rate-setting meetings in May, June, August and September amid the inflation downturn and as the peso bounced back to the 53 to $1 handle in February.

The BSP emerged as the most aggressive central bank in the region after it raised key policy rates by 425 basis points between May last year and March this year to fight inflation and stabilize the local currency that slumped to an all-time low of 59 to $1 in October last year.

Dutch financial giant ING Bank is penciling in a rate hike by the BSP as early as Thursday after Remolona's hawkish comments.

ING Bank senior economist Nicholas Mapa said 'it appears he (Remolona) is preparing the market for a hike and market participants appear ready for such a move.'

'Thus market participants are ready, either this Thursday or next,' Mapa told The STAR.

'We believe a rate hike at this stage would no longer be to quell inflation for 2023 but rather to safeguard the 2024 inflation path.'

On the other hand, China Bank chief economist Domini Velasquez is not convinced the BSP would hold an off-cycle rate hike this week as the 'US dollar - peso exchange has behaved so far.'