Senior Economist Julia Goh and Economist Loke Siew Ting at UOB Group assess the recent announcement by the BSP to hike rates by 75 bps at its November event.

Key Takeaways

“Bangko Sentral ng Pilipinas (BSP) joined US Fed’s hawkish camp again this morning (3 Nov), pre-announcing a 75bps rate hike ahead of its next Monetary Board (MB) meeting that is scheduled on 17 Nov as well as the release of the Oct inflation data (tomorrow, 4 Nov) and 3Q22 GDP numbers (on 10 Nov). This will bring the overnight reverse repurchase (RRP) rate to 5.00%, overnight deposit rate to 4.50% and overnight lending rate to 5.50%, effective from 17 Nov.”

“BSP Governor Felipe Medalla stressed that “it’s not an off-cycle move as the rate hike will take effect after 17 Nov”. He added that the pre-announcement is necessary to maintain interest rate differential with US rates in order to temper any impact on the country’ exchange rate (PHP) and at the same time, to fulfil its price stability mandate.”

“Recognising the BSP’s strong intention to keep pace with the US Fed’s actions and the US Fed’s crucial statement of a higher terminal FFTR this morning, we now expect the RRP rate to be raised by another 50bps at the final MB meeting next month (15 Dec), taking the RRP rate to end the year at 5.50%. BSP is likely to continue its rate hike path in 1Q23 to match the projected US Fed’s actions before taking a pause from 2Q23 onwards.”