Philippines Central Bank Reiterates The Need To Raise Rates With The Fed

The governor of the Philippine central bank said that if the US Federal Reserve continues to raise interest rates, they will have to as well, as they cannot allow the peso to grow too weak relative to the dollar.

It is expected the Federal Reserve’s December meeting will produce a smaller 50 basis point hike, after 4 consecutive 75 basis point hikes at the four previous meetings. However according to a poll of economists by Reuters, a longer period of policy tightening and a higher peak rate are now expected than previous economic estimates had been based upon. Economists say that poses a tremendous risk to the current outlook.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said in an interview however, “If the Fed does 50, we cannot have zero right? So the question is whether it’s 25 or 50.”

So far the BSP has implemented six rate increases this year in an effort to counter inflation, including a 75 basis point hike on Thursday which was largely determined based on the Fed’s prior 75 basis point hike.

Medalla emphasized that the BSP could not allow the rate differentials between the Philippines and the United States to narrow sharply, or the peso would weaken, and the people would continue to see inflation drive up the prices of imported food and fuel.

The Daily Financial Trends