Monetary Board raises interest rates anew

THE Monetary Board decided Thursday, Sept. 22, 2023 to raise the interest rate on the Bangko Sentral ng Pilipinas’ (BSP) overnight reverse repurchase facility by 50 basis points to 4.25 percent, effective Friday, Sept. 23.

Accordingly, the interest rates on the overnight deposit and lending facilities were raised to 3.75 percent and 4.75 percent, respectively.

The BSP’s latest baseline forecasts showed that average inflation is still projected to breach the upper end of the two to four percent target range at 5.6 percent in 2022.

The forecast for 2023 has also increased slightly to 4.1 percent.

Meanwhile, the forecast for 2024 eases to three percent.

In deciding to raise the policy rate anew, the Monetary Board noted that “price pressures continue to broaden.”

“The rise in core inflation indicates emerging demand-side pressures on inflation. Moreover, second-round effects continue to manifest, with inflation expectations remaining elevated in September following the approved minimum wage and transport fare increases. Nonetheless, inflation expectations continue to be broadly anchored over the medium term,” the BSP said in a statement.

Defensive move

Charles Kenneth Co, president of Cebu Chamber of Commerce and Industry, said the rise in interest rate is “a defensive move against the US which increase their rates also. Otherwise, our peso will depreciate too fast without the increase in rates.”

“Businesses must be prudent in their expansion plans if they rely on debt. On the other hand, those who have excess cash will enjoy the higher rates when they save. I hope this does not dampen spending and consumption,” said Co.

Steven Yu, immediate past president of the Mandaue Chamber of Commerce and Industry (MCCI), said the business community has been expecting this 50 basis points increase which is an offshoot of the 75 basis points Fed rate increase.

“We continue to hope that the future increase will abate because these increases will tip us into a slowdown and eventually recession. With these increases, it will dampen consumer spending because the costs will find its way to the prices of goods and services, and businesses will defer further investments because the return of investment will cease to be attractive,” said Yu.

By raising interest rates, the BSP wants to temper inflation, said MCCI president Kelie Ko.

“With higher interest, people will be spending less and inflation may be balanced. It’s a double-edged sword. There will be winners and losers. It may stall investment prospects however,” he said.

Inflation outlook

The risks to the inflation outlook remain tilted toward the upside until 2023 and broadly balanced in 2024, the BSP said.

“Price pressures may continue to emanate from the potential impact of higher global non-oil prices, pending petitions for further transport fare hikes, the impact of weather disturbances on prices of food items, as well as the sharp increase in the price of sugar,” it said.

Meanwhile, the impact of a weaker-than-expected global economic recovery continues to be the main downside risk to the outlook, the BSP said.