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BSP will use all available tools to counter risks to the peso and inflation

Following another 75 basis point hike in the Federal Reserve’s benchmark interest rates, which is expected to have a negative effect on the Philippine peso, all available controls to tame inflation threats will be used.

Felipe Medalla, the governor of the Bangko Sentral ng Pilipinas (BSP), said in a statement on Thursday that the additional rise in Fed funds rates, intended to control the US’ four-decade-high consumer price index, as well as tightening financial conditions worldwide and economic uncertainty, “could continue to drive exchange rate movements in emerging markets” like the Philippines.

“The BSP is prepared to use the full power of available measures to address the possible threats to Philippine inflation expectations emerging from an overshooting or excessive depreciation of the Philippine peso,” he added. “To manage the spillover effects of such external developments.

After raising its benchmark interest rates by 25 basis points in March, 50 basis points in May, and 75 basis points in June of last year, the Fed has already raised those rates by a total of 225 basis points this year.

The Monetary Board (MB), which sets policy for the BSP, has raised the key interest rates by a total of 125 basis points so far: 25 basis points in May last year, 25 basis points in June last year, and 75 basis points this month.

After the US reported an additional acceleration of its inflation rate in June to 9.1 percent, which is projected to further undermine the Philippine peso, among others, the current rate hike was made off-cycle or not during a policy-rate meeting.

The local currency is currently trading at 55 versus the US dollar, up from the previous days when it closed at 56 and nearly struck the most recent record low of 56.45 to the dollar, set on October 13, 2004.

Any future changes to policy, according to Medalla, will be determined by how the monetary authorities “evaluate the local and international factors that affect the outlook for inflation and GDP.”

The BSP’s policy initiatives, according to him, are intended to return the rate of price increases to “a target-consistent path over the medium term.”

The main goal, he continued, is to stop inflation from getting worse. “Further monetary policy changes will be carried out in the coming months consistent with that,” he said.

According to Medalla, the Philippine government’s central bank “believes the country’s good economic prospects continue to give considerable flexibility for further tightening of the monetary policy stance.”

As always, the results of data analysis for the Philippine economy would continue to serve as the basis for the BSP’s future monetary policy choices, he said.

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