Financial authorities raised key interest rates by another 50 basis points on Thursday, citing price pressures that also prompted adjustments to inflation expectations.
The move pushed the Bangko Sentral ng Pilipinas Policy (BSP) or overnight repurchase rate to 4.25 per cent and the overnight deposit and lending rates to 3.75 per cent and 4.75 per cent, respectively.
Key prices have now been raised five times or by 225 basis points this year, starting with back-to-back 25 basis point adjustments in May and June, a sudden off-cycle increase of 75 basis points in July, and 50 basis points last month in an effort to contain the rally. inflation.
While the rise in consumer prices slowed to 6.3 percent in August from 6.4 percent the previous month, it remained well above the government’s target of 2.0 to 4.0 percent for this year.
The Monetary Council indicated, during Thursday’s meeting, the impact of the recent increases in wages and wages, the rise in international non-oil prices, the possibility of further price increases, bad weather, and the sharp rise in sugar prices, which put pressure on expectations.
Inflation forecasts for 2022 were raised to 5.6 percent from 5.4 percent in August and 2023 to 4.1 percent from 4.0 percent. The 2024 forecast was trimmed to 3.0 percent from 3.2 percent.
“Given the heightened uncertainty and the dominance of upside risks in the inflation environment, the Monetary Board recognized the need for follow-up measures to solidify inflation expectations and prevent price pressures from becoming more entrenched,” BSP said in a statement.
Ahead of the rate hike announcement, Central Bank Governor Felipe Medala said the interest rate environment still had room for adjustment.
“Despite the normalization of policy settings, our policy rate remains adequate,” he said.
The BSP indicated that more policy interventions could be made, raising the possibility of more interest rate adjustments on the way, as the US Federal Reserve on Wednesday raised interest rates by 75 basis points.
The US central bank’s tightening has resulted in a stronger dollar and thus a weaker peso. The currency, which fell to P58:$1 for the first time on Wednesday, closed at a new record low of P58.49 per dollar.