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‘We’ve done enough’ to rein in inflation, says Philippine central bank chief

Need for Fed action

Medalla said the direction of the central bank’s monetary policy is suffering from moves from the U.S. Federal Reserve.

“The Fed may be the central bank of the planet. And we as small open economies will will have to consider the ramifications of their actions, especially on our exchange rate,” he said.

The Fed raised its benchmark rate by 0.75 basis point in bothJuneandJuly the biggest back-to-back increases because the central bank started utilizing the funds rate as its chief monetary policy tool in the first 1990s.

Still, regardless of the large moves by the Fed, Medalla said the Philippine central bank is unlikely to accomplish “anything unusual” in the coming months.

“The interest differential between your Philippine interest levels and U.S interest levels [has] end up being the main factor that drives the exchange rate,” he said.

“Now we think the interest differential is merely pretty much in the proper zone again if the Fed makes large moves, we might not have to create large changes inside our policy.”

‘Acting sooner is better’

On Friday, Nomura said in a study remember that the Philippine central bank’s latest 50 basis point rate hike was consistent with consensus expectations in addition to its.

“BSP raised its 2022 CPI inflation forecast to 5.4%, further beyond the 2-4% target, yet still cited upside risks,” it added.

“On the external front, BSP remained cautious, but still noted somerisk of a weak currency increasing inflation expectations. We reiterate our forecast that BSP will hike by 25bp in each one of the remaining meetings of the entire year, taking the policy rate to 4.50% by December,” Nomura said.

The central bank chief said that it’s “comfortable” for the present time, adding that the country’s economy and the bank’s balance sheet remain strong.

“They’re all good that’s my view, the economy may take the hikes. Actually, acting sooner is preferable to acting later. If inflation is higher later on because we delayed the hikes, then your interest hikes should be larger,” Medalla said.

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