BSP hikes rates, first in more than 3 years
The Bangko Sentral ng Pilipinas (BSP) finally raised interest rates for the first time in more than three years yesterday, saying monetary authorities are ready to take further policy action to temper inflationary pressures.
BSP Governor Nestor Espenilla Jr. said in a press conference the central bank’s Monetary Board decided to raise interest rates by 25 basis points, bringing the rate on the overnight reserve repurchase facility to 3.25 percent.
The BSP last raised interest rates by 25 basis points in September 2014 and has maintained an accommodative policy stance through a low interest rate regime for more than three years to support the country’s growing economy.
Espenilla said the interest rates on the overnight lending and deposit facilities were likewise raised by 25 basis points.
Economists and analysts were expecting the BSP to raise interest rates as early as December last year or February
this year as inflation continued to surge with the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.
“We continue to see elevated risks and the Monetary Board basically decided that the time to act is now. And of course our own expectation is by acting right now in our view, a timely manner, we will avoid the necessity of further strong action down the road,” he said
Espenilla said the decision to raise the policy rate now serves as a signal that the Monetary Board has not forgotten its policy instrument that it will use it when it is necessary.
Espenilla said the Monetary Board noted that latest forecasts have further shifted higher, indicating that inflation pressures could become more broad-based over the policy horizon.
The Monetary Board raised its inflation forecast to 4.6 percent this year and to 3.4 percent for 2019 due to rising oil prices, higher transport fares in wages as well as the expected gain in domestic activity through faster gross domestic product (GDP) growth.
Inflation leapt to a fresh five-year high of 4.5 percent in April from 4.3 percent in March, bringing the average inflation to 4.1 percent in the first four months, exceeding the two to four percent target set by the central bank.