The Philippine central bank, called the BSP (Bangko Sentral ng Pilipinas)
The main building of the Bangko Sentral ng Pilipinas (BSP), the Philippine central bank building, on Roxas Boulevard facing the Manila Bay Image Credit: Gulf New file photo

Manila: The Philippine central bank isn't likely to pause interest-rate increases at least in the next two meetings as inflation remains far above target, Governor Felipe Medalla said.

"Inflation expectations are higher than our own forecast," he said in an interview with Bloomberg Television's David Ingles on Friday, a day after delivering a half-point interest-rate increase.

That lifted borrowing costs to 5.5 per cent, the highest since December 2008.

The likelihood of Bangko Sentral ng Pilipinas's key policy rate change being "zero in the next two meetings is extremely low," he said.

The Philippines is home to Southeast Asia's fastest inflation and one of the two economies in the region that's yet to see price gains peak. At 8 per cent, consumer price-growth is double the ceiling of the central bank's 2-4 per cent target, making its containment a top priority for the BSP.

"Inflation will be back to 2-4 per cent by the third or fourth quarter next year," Medalla said. "What we have to do is do more to make sure that happens."

A gauge of Philippine lenders advanced 0.3 per cent, reversing earlier declines, following Medalla's comments.

Supply-driven inflation

The governor had on Thursday noted that the Philippine inflation problem was still mainly supply-driven.

Supply snarls, caused by the war in Ukraine and the pandemic, had driven up inflation around the world this year, forcing central banks to take up unprecedented monetary-policy tightening.

The BSP itself raised borrowing costs by a cumulative 350 basis points, including two 75-basis point moves and three half-point increments.

Foreign Exchange

Pressure has eased to deliver outsized rate increases, however, as the peso stabilized on the Federal Reserve's downshift in monetary tightening. Bloomberg Economics's Tamara Henderson expects the BSP to opt for quarter-point increments once inflation peaks, and deliver a total 50 basis points of rate increases in the first-quarter of 2023.

Medalla on Friday said BSP is still there in the currency market these days to buy or sell dollars, compared to "largely selling" the greenback before when the peso was depreciating.

Asian economies have begun replenishing their foreign exchange reserves, with a weaker dollar easing pressure on central banks to support their currencies.

The peso — which has gained more than 5 per cent against the greenback this quarter along with most currencies in the region — was little changed in early trading Friday.

Medalla said on Friday the central bank has revised its view on when inflation will peak — December instead of November as seen previously. The government has set a 2-4 per cent price growth target through 2026, BSP said separately in a statement.