BSP hikes key rates by 50 bps anew
Monetary authorities yesterday raised benchmark rates by another 50 basis points (bps) as the central bank made good on its warning of strong follow-through action to rein in inflation expectations and dampen exchange rate pressures.
Yesterday, the Monetary Board (MB) raised the overnight borrowing rate to 4.5 percent. and lending rate to 5.0 percent.
This is the fourth time in a row that the Bangko Sentral ng Pilipinas (BSP) has adjusted policy rates higher. With the baseline inflation forecasts shifting up starting in the second quarter, the BSP hiked interest rate by 25 bps each on May 10 and June 20, and by 50 bps last August 9.
Without the data for the September inflation which will be released on October 5, the BSP revised its inflation fore-
casts for 2018 as expected and raised it to 5.2 percent from its previous estimate of 4.9 percent. For 2019, it is now 4.3 percent from 3.7 percent while for 2020, the 3.2 percent forecast from the August 9 policy meeting is retained, according to BSP Assistant Governor Francisco G. Dakila Jr.
On Wednesday, the US Federal Reserve raised interest rates and left intact its plans to steadily tighten monetary policy, as it forecast that the US economy would enjoy at least three more years of growth.
In the local front Inflation have accelerated to 6.4 percent in August from 5.7 percent in July and 2.7 percent same time in 2017.
Meanwhile, the local stock market bounced back yesterday after steep losses in the past two days, boosted by the start of window dressing for the end of the third quarter.
The main index gained 52.38 points or 0.72 percent to close at 7,320.59. BSP Deputy Governor Chuchi G. Fonacier, currently the governor-in-charge, said price pressures have build up with supply-side factors such as rising global oil prices, the higher excise taxes on selected consumer items, and weather disturbances.
In the past three Monetary Board meetings, Fonacier said policymakers opted for a strong response on early signs of second-round effects and cost-push pressures on prices and wages.
She also added that an aggressive response is warranted still due to the potential price pressures from “excessive volatility in the foreign exchange market” which are disanchoring the elevated inflation expectations despite continued “solid and healthy” fundamentals. Such sustained pressures on the peso would only further hurt inflation expectations. The peso at 154:$1 has already lost more than eight percent year-to-date and one of the worst currency performer in the region.
Fonacier maintains the BSP’s anti-inflation stance, and that the Monetary Board continues to have both timely and appropriate, as well as decisive actions.
BSP Governor Nestor A. Espenilla Jr. was not present during the Monetary Board meeting, he is on a two-week medical leave. Deputy Governor Diwa C. Guinigundo, in the meantime, is in London for the Philippine economic team’s investor roadshows.