Philippines hikes rate for first time since 2018 on price risks

THE Philippine central bank raised its key interest rate for the first time since 2018 to combat South-east Asia's second-fastest inflation.

Bangko Sentral ng Pilipinas (BSP) increased the benchmark rate by 25 basis points to 2.25 per cent, it said in a statement on Thursday (May 19), as forecast by 14 of 21 economists in a Bloomberg survey. The rest forecast no change.

The Philippines is the latest in Asia to tighten policy settings after India and Malaysia unexpectedly raised borrowing costs this month to battle price pressures. Faster inflation fanned by the war in Europe and supply disruptions from virus lockdowns in China risk denting consumption demand, and in turn the global economic recovery from the pandemic.

Governor Benjamin Diokno termed the increase “timely” and one that will help arrest second-round effects. “The pace and timing of further monetary policy actions by the BSP shall be guided by data outcomes,” he said.

Consumer prices are currently at 4.9 per cent - the second-fastest rate in South-east Asia and well above the central bank's 2 per cent-4 per cent target band.

Diokno also announced shifting the pandemic-era bond buying window to a regular facility to manage money supply. BSP's loan to the government will also be fully paid this week, ahead of its maturity next month, he added.

The peso gained as much as 0.3 per cent to 52.30 per dollar on Thursday, the sole gainer among emerging Asian currencies. The nation's benchmark stocks index fell 1 per cent at close before the rate decision.

"The move was expected," said Nicholas Mapa, economist at ING Groep NV in Manila. "The bigger development was the quick walk back of pandemic support with BSP closing the provisional advance and tweaking the bond purchase window."