Philippine central bank hikes rates by 50 basis points, keeps hawkish view
THE Philippine central bank raised its benchmark interest rates by half a percentage point on Thursday (Aug 18), as expected, and kept the door open for further hikes to bring inflation back within its target range.
The Bangko Sentral ng Pilipinas (BSP) lifted the overnight reverse repurchase facility rate to 3.75 per cent, as predicted by most economists in an Aug 8-15 Reuters poll.
The rates on the overnight deposit and lending facilities were raised by 50 basis points to 3.25 per cent and 4.25 per cent, respectively.
“The Monetary Board deemed further monetary action to be necessary to anchor inflation expectations and avoid a further breach in the inflation target over the policy horizon,” BSP governor Felipe Medalla told reporters.
The BSP, which has raised rates by a total of 175 basis points this year, remains committed to “take all necessary actions to steer inflation towards a target-consistent path over the medium term”, Medalla added.
Philippine inflation, which hit a near 4-year high of 6.4 per cent last month, averaged 4.7 per cent in January to July, above the BSP’s 2 per cent-4 per cent target band for the year.
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Adding pressure through imported inflation, the Philippine peso has fallen nearly 9 per cent this year against the US dollar - the third worst performer among Asian currencies.
The BSP lifted its 2022 average inflation forecast to 5.4 per cent from 5.0 per cent. However, it lowered the average inflation forecast to 4.0 per cent from 4.2 per cent for 2023, and to 3.2 per cent from 3.3 per cent for 2024.
Despite the domestic economy’s slowdown in the second quarter, when inflation hurt consumer spending, Medalla said overall domestic demand conditions have generally held firm, supported by improved employment numbers and ample liquidity.
Ten out of 16 economists in the Aug 8-15 Reuters poll forecast another 25 bps basis points hike at the September meeting, taking rates to 4.00 per cent, where they were before the Covid-19 pandemic.
Seven economists forecast rates would reach 4.25 per cent or higher by end-2022, 6 expected rates to reach 4.00 per cent, while the remaining 3 said rates would be 3.75 per cent or lower. REUTERS
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