Philippine Finance Chief Sees Rate Hike Cycle Nearing End

(Bloomberg) — Philippine Finance Secretary Benjamin Diokno sees room for one of Asia’s most hawkish central banks to further slow interest rate increases and possibly change tack as inflation expectations cool.

Asked about his view on what would be the peak rate for the Philippines, Diokno told Bloomberg Television’s Yvonne Man that it probably won’t be far from the 5.5% level it is now. The finance chief who sits in Bangko Sentral ng Pilipinas’s seven-member Monetary Board said Wednesday that a shift to smaller, quarter-point moves was possible.

He said there “could be a pivot towards the middle of the year,” without elaborating. That suggests a possible pause, given Diokno’s expectations for inflation to return to target next year as monetary and fiscal policies work in tandem.

Central bank Governor Felipe Medalla, however, said it’s too early to talk about pausing from rate hikes this year, citing the risk that the Federal Reserve would continue tightening. It’s unlikely that the BSP will stand pat on the current rate in the next two meetings, he told reporters after a forum in Manila later Wednesday.

“I’m ruling out cuts in the very short run, and I am not ruling out increases. But maybe the increases will not be as large as they used to be,” said Medalla who earlier this week signaled a 25- or 50-basis point increase at the next policy meeting.

BSP has raised the key rate by 3.5 percentage points so far in this tightening cycle, starting in May, taking the benchmark rate to the highest since 2008. The central bank raised the rate by 75 basis points twice and made three half-point increases in the past year.

Although inflation still hovers at a 14-year high of 8.1%, the Fed’s downshift and a slowing global economy provide the central bank scope to go easy on rate hikes to preserve domestic recovery.

Read: Philippines Flags Quarter or Half-Point Rate Hike Next Meeting

The Philippines was among the first in Asia to start withdrawing monetary stimulus after the pandemic. As concerns about a global growth slowdown rise, BSP may see the need to support the economy, which is a rare bright spot in the region with 2022 growth likely to surpass 7%.

Gross domestic product probably grew at least 7.5% in the fourth quarter, Diokno said, while hinting at the need for caution going ahead. The government will report last quarter’s growth numbers on Jan. 26.

“I would not be telling the truth if I say we are not affected,” he said, referring to recessionary fears in some advanced economies. He said the Philippines is insulated to the extent that foreign trade is not that big, and tourism isn’t comparable to Thailand or the Bahamas.

“We are more reliant on Filipino workers, and that’s been resilient,” said the finance secretary, referring to the millions of nationals working overseas who send money home equivalent to about 10% of GDP.

Joining a global deal rush, the Philippines this week sold $3 billion in dollar-denominated debt to fund the budget and finance sustainable projects. The peso strengthened to a six-month high against the dollar this week, although it was down 0.2% at 10:06 a.m. local time.

Here are other key comments from Diokno

Biggest concern of rating companies is the balance of payments, he said, adding that it’s manageable. “We have structural inflows,” including overseas remittances
Nation plans to issue dollar-denominated retail bonds “pretty soon,” Diokno said, adding that the Philippines is also looking at Middle East for bond issuance
Government can collect more taxes and with digitalization, its tax administration will improve
Climate change as the biggest risk facing country, given the Philippines is prone to typhoons and flooding

–With assistance from Adrian Wong, Siegfrid Alegado, Cecilia Yap and Manolo Serapio Jr..

(Updates with central bank governor’s comments from fourth paragraph.)

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