Press Releases

Salceda: BSP more likely to do 75 bps hike than 50 bps in next meeting; House Ways and Means panel to ask monetary policymakers for strategy to protect reserves, earn more dollars

October 16th, 2022

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) says that the Bangko Sentral ng Pilipinas is more likely to do a 75 basis points interest rate hike in the next meeting of the Monetary Board “to maintain a healthy gap between Philippine and US Fed rates and to just make sure we’re not caught with our pants down in the water during this global economic low tide.”

“It’s probably 75 bps by November 17, not 50 bps.”

“We can’t influence the Fed, but the Fed influences our own decisionmaking. So what the US does counts for everything. But, I think the BSP has come to the conclusion that a 75 bps policy rate hike won’t hurt much more than a 50 bps hike. So, I think the BSP sees the need for a rate hike given our trade balance and FDI issues.”

“Between 50 and 75, I’m inclined to say they’ll do 75. In any case, the House committee on ways and means will exercise its privilege and jurisdiction over monetary policy. We will meet with monetary policymakers, but it won’t be on-the-spot, so we don’t unduly pressure what should be an independent body,” Salceda adds.

BSP Governor Felipe Medalla says that every 25 bps increase in rates decreases GDP growth by 5 bps.

“So, what’s next is we need to make sure these cuts are balanced out by more dollar earnings, probably in tourism, BPOs, OFWs, and freelancers with foreign clients. And I will have the Committee discuss this with our policymakers.”

Salceda’s committee oversees monetary policy decisions of the BSP, as its mandate includes “All matters directly and principally relating to the fiscal, monetary and financial affairs of the national government.”

“This is rarely exercised given the courtesy we extend to what should be an apolitical body. But I also want the BSP to explain how bad or how manageable the situation is, and what’s in our toolkit,” Salceda added.

The peso dropped more than 13 percent this year, one of the steepest among major Asian currencies. The BSP has already hiked the key rate by 225 basis points so far this year, the most in ASEAN.

The BSP’s moves have brought the overnight reverse repurchase rate to 4.25 percent, the highest since 4.5 percent in June 2020.

The Monetary Board is set to meet on November 17 to review the current policy rate.

Salceda says he wants to make sure that “the BSP is not killing some growth for nothing. I want to know what their projected impact on the currency and reserves is. Because fighting the dollar can be a very expensive and ultimately futile act.”

Salceda believes that part of the BSP’s strategy must be to “work with national government agencies to increase our dollar earnings.”

“It’s not conventional of monetary policymakers to dip deeply into the real economy, but given the very limited tools that the BSP possesses, and given how ineffective these tools could be against an overwhelmingly strong dollar, earning more dollars must be part of the BSP’s work with other agencies in the real sector.”

“So, we will invite Governor Medalla over soon. I also want to understand how we can bolster our reserves and earn more dollars.”

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