Medalla confident economy can meet growth goal despite rate hike
Despite the increase in the policy rate, Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla expressed confidence that the 6.5 percent to 7.5 percent growth rate can be attained this year.
"Our own models in BSP says that in spite of all these increases in the policy rate, the government’s forecast of 6.5 to 7.5 this year is well within reach. And six and a half to eight and a half going forward, 2023 and onwards, are still all quite attainable," Medalla said during the post-State of Nation Address (SONA) press briefing on Tuesday.
"We increased the policy rate. Well, we did it three times, the 25 basis point, and then a surprise 75 ( basis points). It’s a surprise because it was not on the calendar to meet on interest (rates) and of course, 75 was considered large," he said.
Medalla said a big rate hike will be done ''only once'' but as to how many rate hikes will be done, he replied: ''That would be dependent.''
He explained that the current decline in the price of oil, which is below $100 a barrel, ''signals there is less a need for rate hikes.''
''On the other hand, the US (Fed) is surely going to raise its policy rates by 75 basis points. You are in a situation where the US policy rates and the Philippine policy rates are...there is very little difference between the two,'' he said. Too much depreciation of the peso, what we economists call overshooting, could actually add to an inflation that's already high,'' added Medalla.
''So these are things that we are balancing,'' he said.
Medalla said the country's monetary policy ''is still very supportive of economic growth.''
"Indeed, the policy rate, which used to be a record low 2 percent, is now just around 3.25 percent. So, by large or estimate the economy can absorb the increase in the policy rate," he added.
Medalla noted that most of the inflation recorded comes from the supply side and majority are imported.
"Much of our inflation is what we call the supply side. And a big part of it is imported. But we have to act because what we are afraid of is that this important inflation will have a life of its own. And start a self-fulfilling prophecy of prices rising because prices are rising," he said.
Medalla also expressed optimism that the monetary policy and credit supply will support growth and financial stability. The government is also monitoring the banks which hold government securities.
"The price of the securities will fall as interest rates rise. But again, we look at the capitalization of the banks. The banks are very adequately capitalized so they can absorb the rate hikes. So we’re very optimistic that the monetary policy and credit supply will remain supportive of growth and financial stability," he said.
"So going forward, of course there is so much uncertainty, but we stand ready to make the necessary adjustments so that balancing between maintaining/sustaining growth, and ensuring financial stability on the one hand and price stability on the other will all be achieved," he added. Robina Asido/DMS
