November 27, 2022

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‘PHL could hit inflation target by ’24 with an increase of 75 GNP’

3 min read

BANGKO Sentral ng Pilipinas (BSP) Governor Felipe M. Medalla said he has for 75-
Basis point hike in interest rates at Thursday’s Monetary Board (MB) meeting will boost the country’s likelihood of hitting its 2024 inflation target.

In his message at the EJAP-Ayala Business Journalism Awards last Friday, the central bank governor reiterated the importance of monetary policy to dampen inflation and support the peso.

Medalla reiterated his position that monetary authorities will vote to accommodate the Federal Reserve’s recent rate hike at the upcoming MB rate setting on Nov. 17.

“The BSP interest rate hikes will also prevent a significant narrowing of the US-Philippines interest rate differential,” the BSP governor said. “Maintaining a comfortable differential between our benchmark interest rate and that of the US supports the peso.”

Medalla said the BSP is implementing a flexible exchange rate policy, but recognizes that the continued depreciation of the peso “may crowd out inflation expectations,” necessitating monetary authorities to intervene, in line with their price stability mandate.

He also assured that the Philippines has sufficient international gross reserves (GIR) that could allow them to sell dollars and “smooth out FX market volatility.”

The country’s GIR stands at $94.1 billion at the end of October. This corresponds to 7.5 months of imports of goods and payments of services and primary income. (Whole story:

The peso, meanwhile, has gained some direction as Friday’s trading showed it closing at 57.347p against the US dollar, the highest since September 16 when the peso closed at 57.073p against the greenback.

“The BSP uses three tools to cushion the economy from disruptions – interest rate adjustment, flexible exchange rates and foreign exchange participation,” the central bank official said. “We use a combination of these tools in a well-calibrated manner to keep the impact of external shocks manageable.”

Meanwhile, Medalla said BSP is on track to meet its two goals under its Digital Payments Transformation Roadmap.

These goals are to increase the volume of financial transactions in the country through digital platforms by half, and at least 70 percent of Filipino adults should be financially involved through a formal transactional account.

“I am pleased to report that we are on the right track to achieve both of these goals. In 2021, 30 percent of financial transactions were conducted through electronic channels, while 56 percent of Filipino adults already had formal transaction accounts,” Medalla said.

higher inflation

In a recent televised interview, Rosemarie G. Edillon, undersecretary for planning and policy for the National Economy and Development Agency, said inflation has not yet peaked, although it hit 7.7 percent in October.

Edillon expects Typhoon Paeng (international name Nalgae) could lead to higher inflation in November. However, there are aid programs specifically for the agricultural sector.

These aid programs are part of the government’s short-term response, covering the agriculture, fisheries and transport sectors that have been significantly impacted by higher prices.

Edillon said these cash transfers are being made available to help those sectors continue to increase their productivity despite rising input costs such as fuel and fertilizer.

“Kasi ang kailangan talaga natin, iyong sinasabi nga naming robust solution for patuloy na paglakas ng ekonomiya natin ay magkaroon po tayo ng mas maraming trabaho,” Edillon said. [Because what we really need—a robust solution for the continued strengthening of our economy—is for us to have more jobs.]

“Para magkaroon tayo ng mas maraming trabaho – and saka iyong high quality jobs ang tinitingnan namin ditto ha – kailangan natin ng mas maraming investments,” she added. [For us to have more jobs—and we’re looking at quality jobs here, huh—we need more investments.]

Expensive food has pushed the country’s inflation to its highest level since the rice price crisis 14 years ago and may do so again this month, according to the Philippines’ Statistics Agency (PSA).

PSA data showed that inflation hit 7.7 percent in October, the highest since December 2008, when inflation hit 7.8 percent, also coinciding with the start of the global financial crisis.

Food and non-alcoholic beverage inflation was recorded at 9.4 percent nationwide and accounted for 80.9 percent of the increase in the country’s October inflation figure. Food inflation alone is 9.8 percent.

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