Another interest rate hike by the Bangko Sentral ng Pilipinas (BSP) at its 22 October meeting would be an appropriate response to surging inflation, former Finance Secretary Gary Teves said Wednesday, but he cautioned that monetary tightening alone cannot resolve the underlying supply-side pressures.
In an exclusive interview on the DAILY TRIBUNE program Straight Talk, Teves said a further increase in the BSP’s policy rate could help anchor inflation expectations, even as the country needs to address deeper problems in production and productivity.
“The present situation is largely a case of what you call supply-side concerns. Issues of productivity, production, are really going to be more critical in reducing the inflation rate or inflationary pressure,” he said.
“But in the meantime, while inflation is elevated – I think 7.2% in September – I think the move of the central bank to slightly increase the policy rate would probably be correct,” he added.
Inflation hit 7.2 percent in September, matching a three-year high recorded in April, as the Middle East conflict continued to disrupt energy markets. Teves said the country’s reliance on imported oil, much of which passes through the Strait of Hormuz, has left the economy exposed to external supply shocks.
Although Washington recently said 97 percent of vessels passing through the strait remained safe, domestic fuel prices have remained volatile and elevated.
The BSP has raised rates three times against this backdrop, with its latest increase in August partly reflecting concerns over potential supply-side pressures from a forecast severe El Niño toward the end of the year.
Teves said a further hike could signal the central bank’s resolve to keep inflation expectations in check, even if the measure cannot directly address supply constraints.
“It's one way of what economists term as trying to contain expectations, letting the public know that the Bangko Sentral is really firm in trying to hit a reasonable inflation target,” he said.
Economists expect the BSP to raise its policy rate by at least 25 basis points at Thursday’s meeting, citing the potential impact of El Niño alongside lingering disruptions from the Middle East conflict. The outlook remains uncertain following the failure to resolve the conflict, including after US President Donald Trump rejected Tehran’s latest peace deal terms.
“Even when El Niño really comes, most estimates suggest El Niño will be quite severe, around about the end of the year. About the first quarter and spilling over to the second quarter next year,” Teves said.
BSP Governor Eli Remolona Jr. has also acknowledged the limits of monetary policy in addressing the current supply-side shock, noting that the central bank’s tools primarily influence demand.
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