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Given the monetary authorities’ transparency on their rate hike decisions, the stability of the Philippine peso as well as actual and forecast inflation are expected to continue.

After the two-day meeting of its Federal Open Market Committee (FOMC) on Nov. 2, the Federal Reserve increased its fund’s rate by 75 basis points, which was generally anticipated, according to Michael Ricafort, chief economist of Rizal Commercial Banking Corporation (RCBC).

The Fed’s benchmark rate is now between 3.75 and 4 percent following the most recent rate increase.

In the wake of the Fed’s most recent massive rate increase, Ricafort said that US financial authorities had indicated that “Fed rates ceiling will go higher (ways to go) vs. earlier predictions, but might involve smaller Fed rate hikes as early as December 14, 2022, or the one after that.”

The Fed noted that a pause on the present tightening bid is still premature and that its announcement was based on the government’s attempt to bring the US’ four-decade high inflation rate to within its 2 percent objective.

In order to ensure a sufficient interest rate disparity with that of the US, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla on Thursday hinted at another 75 basis point hike in the BSP’s key rates during the meeting of the policy-making Monetary Board (MB) on Nov. 17.

In addition to other tools in the policy toolbox, Ricafort claimed that Medalla’s comments “would assist stabilize the peso exchange rate (through a more comfortable interest rate differential with the US dollar), actual inflation, and inflation expectations.”

According to him, local authorities “clear and specific signals have been unprecedented in a positive way, in terms of greater transparency and forward-looking/guiding in nature, thus promoting greater certainty/stability for the local economy and financial markets, as well as creating an environment more conducive for better planning and preparations for businesses/industries, consumers, other institutions, and the general public.”

So far, the BSP has raised its benchmark interest rates by a total of 225 basis points in an effort to combat the effects of the high inflation rate and support the local currency against the US dollar’s persistent rise.

The overnight lending rate for BSP is currently 4.75 percent, the overnight deposit rate is 3.75 percent, and the overnight reverse repurchase (RRP) rate is currently 4.25 percent.

According to Ricafort, the BSP’s RRP rate will be between 5.50 and 6.00 percent at the end of the year “as a function of further Fed rate hikes and the trend in the US inflation as one of the most important data being monitored, as well as the behavior of the peso exchange rate vis-à-vis other global/Asian/Asean currencies.”

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