MB’s Medalla says rate hike ‘not on the table’


THE CENTRAL BANK is unlikely to raise key rates as the Philippine economy recovers from the crisis, a Monetary Board (MB) member said on Tuesday.

“What I assure you is that we have a lot of space in the BSP for very accommodative policy. Right now, I think the only debate is whether we cut [or hold rates steady]. Raising [the policy rate] is not in the picture,” Monetary Board member Felipe M. Medalla said during a briefing organized by the Management Association of the Philippines.

Mr. Medalla, a former socioeconomic planning secretary, said they are considering the impact of their actions on financial stability, adding “monetary policy should be very supportive of the fiscal sector.”

A BusinessWorld poll showed 17 out of 18 analysts expect the Monetary Board to keep policy rates at record-low levels during its scheduled meeting on Thursday.

“We probably can say we will remain in this negative real interest rate policy for at least a year or two. And even if it [real interest rate] rises, it will be below one [percent] by [20]23 and beyond,” Mr. Medalla said.


Inflation in January stood at 4.2%, surpassing the 2-4% annual target of the central bank. This puts the Philippines under a negative real interest rate environment with the key policy rate at 2% following a cumulative 200-basis point cut last year.

“Even if inflation returns to normal, which we are quite sure will happen, normal is maybe 3%, we are already in a negative real interest rate territory,” Mr. Medalla said.

Earlier, BSP Governor Benjamin E. Diokno said the spike in inflation was caused by supply-side factors and “should not require a monetary policy response unless they lead to further second round effects.”

“There is only so much that monetary authorities can do. Fiscal policy is extremely important… No matter what happens to [the] deficit,” Mr. Medalla said.

He said it will be crucial for the government to spend on “good projects,” while the Philippines still enjoys a low debt-to-gross domestic product (GDP) ratio that allows it to secure lower borrowing rates.

Debt-to-GDP ratio stood at a 14-year high of 54.5% as of end-2020, following the 39.6% in 2019. It is expected to increase to 57% this year.

Mr. Diokno has earlier assured they will keep interest rates low until the economy is back to its pre-pandemic growth trajectory and the labor market improves.

The country’s economy shrank by 9.5% last year, but the government expects GDP to grow by 6.5-7.5% this year.


Recovery prospects across industry sectors to be uneven and warned the ongoing crisis will continue to escalate social inequality.

“We’ve all heard about the kind of recovery we might get — L, U, V, W, the Nike swoosh, but frankly what concerns many of us is the K-shaped recovery, which means it’s really going to be a differential effect,” Cielito F. Habito, chairman of Brain Trust: Knowledge & Options for Sustainable Development, Inc., said during the same forum.

Mr. Habito, also a former socioeconomic planning secretary, said some industries, including the tourism sector, will continue to need sustained assistance, while other sectors such as e-commerce have already “taken off even during the pandemic.”

He said the pandemic exposed the social inequality where the “more well-to do are already beginning to see their lives resume gradually,” while the poor grapple with unemployment and worsening conditions.

“This is the kind of divergence that we would like to avoid because we have been talking about inclusive growth and we are seeing more exclusion happen in the moment,” Mr. Habito said.

Meanwhile, Johanna Chua, managing director and head of Asia Economic and Market Analysis at Citigroup, Inc. said there is a need to provide further support to the most vulnerable households given the economic prospects are still clouded by the virus uncertainty.

“It’s going to probably take a while for private investments to recover. So the question is what can the government do? Clearly infrastructure is still one where there are still gaps,” she said. — Luz Wendy T. Noble


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