MANILA -- The Monetary Board (MB) of the Bangko Sentral ng Pilipinas (BSP) raised anew policy interest rates by 25 basis points as a preemptive measure to moderate any second-round price surge that may occur saying that “inflation expectations remained elevated for 2018”.
In a press briefing following the MB meeting on Wednesday, BSP Governor Nestor Espenilla Jr. announced that yield on central bank’s overnight reverse repurchase (RRP) facility now stood at 3.50 percent.
“The interest rates on the overnight lending and deposit facilities were likewise raised accordingly,” he added.
In its policy meeting last May 10, the MB hiked key policy rates by 25 basis points -- the first time for the central bank to adjust policy interest rates since September 2014 -- to temper price pressures.
“I mentioned about the potential for further policy action. That is a statement that basically reflect our continued watchfulness. We will continue to monitor the data flow, then see what we have done so far. Two policy rate hikes is sufficient to secure our return to target range by next year,” Espenilla said.
The government’s inflation rate target for 2018 and 2019 is within 2 to 4 percent range.
Espenilla noted that the central bank is closely monitoring developments in the market such as wage hikes, possible fare adjustments, and the volatility of the foreign exchange rate, which are indicative of second-round effects from ongoing price pressures.
“It’s still a very complex environment and there are uncertainties. What the BSP is signaling to the market is that, first and foremost, we truly put a lot of focus on hitting our inflation target,” he said.
“This year it seems like it’s no longer possible, but definitely we would like to hit the target next year. That is what were are preparing in terms of policy action,” he added.
Increasing the interest rates encourages consumers to save, as yields from savings are higher. Since there is less disposable income being spent in the market due to increased interest rate, the economy and inflation both slow down.
Meanwhile, BSP Deputy Governor Diwa Guinigundo said the central bank revised its inflation projection downward to 4.5 percent this year and 3.3 percent next year.
Last month, BSP inflation forecast for 2018 and 2019 was at 4.6 percent and 3.4 percent, respectively.
Guinigundo cited four reasons seen by the Monetary Board for inflation to remain elevated in 2018. These include the sustained robust economic activity during the second half of the year; the positive base effects from June to August due to the difference in oil price assumption and actual numbers on pump prices; implementation of wage hike by October 2018; and the scheduled PHP2.50-excise tax implementation on tobacco next month.
He also said inflation is expected to peak by the third quarter of 2018.
Guinigundo noted that there are government measures that will help in mitigating price pressures in the market, which include the passage of rice tariffication bill in the Congress and the roll out of Pantawid Pasada.
“The move of the BSP is really meant to strengthen the anchoring of inflation expectation,” he said. (PNA)
