BSP hikes rates: 50 bps
The Monetary Board’s move to follow through monetary policy response was deemed necessary to reduce the risk of a breach in the inflation target in 2024
The Bangko Sentral ng Pilipinas’ Monetary Board on Thursday decided to hike key policy rates by 50 basis points, effective today, 17 February, sustaining the pace of outsized moves after inflation bolted at the start of the year.
The Monetary Board increased its benchmark rate by a half -point, as mentioned by three of five analysts in a Daily Tribune survey, with the rest predicting a quarter-point increase.
In a media briefing after monetary authorities’ first rate -setting meeting this year, BSP Governor Felipe Medalla said the interest rates on the overnight deposit and lending facilities will be set to 5.5 percent and 6.5 percent, respectively.
“An upward adjustment in the policy interest rate would also prevent inflation expectations from drifting further away from the target band,” Medalla explained.
The BSP Governor added that the Monetary Board’s move to follow through monetary policy response was deemed necessary to reduce the risk of a breach in the inflation target in 2024.
Since May of last year, borrowing costs have increased by 400 basis points. The most recent action represents BSP’s fourth half-point increase.
More rate hikes possible
When asked if there would be more rate hikes moving forward, Medalla said, “Yes, it is possible.”
“The least likely scenario is a no increase (at) the (next policy) meeting. We cannot rule out anything yet, but I would say which is the least likely scenario,” Medalla added.
China Bank chief economist Domini Velasquez expects the BSP to pause its rate hikes next month as the “base case scenario.”
Velasquez said the inflation is already on a downward trend and frontloaded interest rate hikes may be sufficient to anchor inflation.
“Too much tightening might hurt the economy especially since we expect pent-up demand to fade in 2023,” Velasquez said in a Viber message.
Inflation to remain elevated in 2023
However, BSP’s Department of Economic Research officer-in -charge Dennis Lapid said that inflation is projected to remain elevated until early in the fourth quarter of this year.
He added that inflation is seen to average 7.7 percent in the first half of this year.
When the Covid-19 pandemic was at its worst, the central bank kept the rate at a record-low 2 percent.
The BSP’s own predicted range of 7.5 to 8.3 percent was breached by the inflation rate last January, which reached a new 14-year high of 8.7 percent.