(Eagle News) – The Bangko Sentral ng Pilipinas set its key policy rate at 3.25 percent, after the Monetary Board decided to raise the interest rate on the BSP’s overnight reverse repurchase by 75 basis points.
This is effective Thursday, July 14, after the morning’s regular meeting of the Monetary Board.
BSP Governor Felipe Medalla said that “accordingly, the interest rates on the the overnight deposit and lending facilities were raised to 2.75 percent and 3.75 percent, respectively.”
He explained that the Monetary Board, which he also chairs, had to take raise the policy rates anew as an “urgent action” to control inflation.
“By taking urgent action, the Monetary Board aims to anchor inflation expectations further and temper mounting risks to the inflation outlook. In particular, policy action is intended to help manage spillovers from other countries that could potentially disanchor inflation expectations,” he said in a statement which he announced live on Thursday.
The move follows similar increases around the world as war in Ukraine and supply disruptions fan inflation and increase the financial strain on households and businesses.
The surprise interest rate hike on Thursday in the Philippines effectively raised borrowing costs for the third straight month.
-Broadening price pressures cited-
The monetary officials warned that more such moves could follow as they try to rein in surging energy and food prices.
Medalla said that they had to do this because of “broadening price pressures.”
“In raising the policy interest rate anew, the Monetary Board recognized that a significant further tightening of monetary policy was warranted by signs of sustained and broadening price pressures amid the ongoing normalization of monetary policy settings,” he explained.
The central bank, which had been due to review its monetary policy in August, has now raised rates by 125 basis points since May.
Before then, it had held them at historic lows since November 2020 to prop up the economy during the pandemic.
“The Monetary Board noted that favorable conditions arising from the strong rebound in growth thus far in the year suggest that the domestic economy can accommodate a further tightening of monetary policy settings,” Medalla said.
He said that the Monetary Board “continues to urge timely non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices.”
He said the public of the BSP’s “unwavering commitment and readiness to take further necessary actions to steer inflation towards a target-consistent path over the medium term in keeping with its price stability mandate.”
Bank of the Philippine Islands lead economist Emilio Neri said he expected another hike next month as US interest rates continued to rise.
“This won’t necessarily be a drag on growth,” Neri said.
“Our economy managed to grow seven percent or more even with a policy rate of four percent.”
Inflation hit 6.1 percent in June, the highest level in nearly four years as steep oil price hikes pushed up food prices and transport costs.
The central bank’s target range is 2-4 percent.
(Eagle News Service with a report from Agence France Presse)