Bangko Sentral delivers another 25 bps rate hike to stem inflation

THE Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, delivered another 25-basis-point increase in key interest rates on Thursday to stem one of the stickiest inflation rates in the region.

It raised the overnight borrowing rate to 6.25 percent and adjusted the overnight deposit and lending facilities to 5.75 percent and 6.75 percent, respectively.

BSP Governor and MB chairman Felipe Medalla said the rate hike would take effect March 24.

“The Monetary Board’s decision was based on the sum of new information and its assessment of the effects of past policy actions, which warranted a continuation of monetary tightening to anchor inflation expectations,” Medalla said in a briefing.

“With core inflation rising in February despite a modest decline in headline inflation, further monetary policy action was deemed necessary to address broadening price impulses emanating from robust domestic demand and lingering supply-side constraints,” he said.

The board slightly lowered the inflation forecast for 2023 to 6 percent from 6.1 percent made in the February meeting. The forecast for 2024 was also revised downward to 2.9 percent from 3.5 percent.

BSP Deputy Governor Francisco Dakila said the lower inflation forecasts for 2023 and 2024 took into account the easing of inflation in February to 8.6 percent from the 14-year high of 8.7 percent in January. Another factor considered was the more challenging global growth outlook.

“Moreover, inflation expectations have increased slightly for 2023, while those for 2024 and 2025 remain near the upper end of the target band. The Monetary Board supports the creation of the Inter-agency Committee on Inflation and Market Outlook,” Medalla said.

He said the balance of risks to the inflation outlook for 2023 and 2024 remained tilted heavily towards the upside. The effect of supply shortages on domestic food prices remained a concern, while the potential impact of higher transport fares, increasing electricity rates and above-average wage adjustments in 2023 pointed to the broader-based nature of price pressures.