MANILA -- The Monetary Board (MB) on Thursday raised key interest rates by another 50 basis points, in a decision which did not surprise the market. The increase, which takes effect August 10, is widely seen as a move to stem surging inflation.
This will be the third and biggest hike in key rates this year, following two consecutive increases of 25bps each implemented by the Bangko Sentral ng Pilipinas' (BSP) policy-making body in May and June. With it, local interest rates have been raised by a total of 100bps this year.
The last time the MB made a similar decision was in July 2008, under similar circumstances.
Thus, rate of the overnight reverse repurchase (RRP) facility will be at four percent, the repurchase (RP) facility at 4.5 percent and the special deposit account (SDA) facility at 3.5 percent.
“Upside risks also continue to dominate the inflation outlook, as the sustained increase in core inflation suggests broadening price pressures amid resilient aggregate demand conditions,” BSP Governor Nestor A. Espenilla Jr. said in a briefing.
In 2008, the country also experienced high inflation rate. In July of that year, inflation stood at 12.2 percent, up from 11.4 percent in the previous month. That year, the government’s inflation target is a range between three to five percent.
Last July, inflation rose to multiyear high of 5.7 percent from month-ago’s 5.2 percent, bringing the average in the first seven months this year to 4.5 percent.
With rate of price increases seen to remain high, Espenilla said the Board “deemed stronger monetary action to be necessary to rein in inflation expectations and prevent sustained supply-side price pressuress from driving further second-round effects.”
The BSP chief said the rate hikes so far this year are expected to address risks to inflation and ensure that levels will remain within target over the medium term.
“Favorable conditions arising from sustained domestic growth also suggest that the economy can accommodate a further tightening of monetary policy settings,” he said.
Espenilla also said monetary officials continue to coordinate with other government agencies in implementing non-monetary measures to thwart impact of supply-side factors on inflation.
“The BSP reiterates its strong commitment and readiness to take all necessary policy actions to address the threat of high inflation and deliver on its primary mandate of price stability,” he said.
Espenilla said the hike is targeted to support domestic growth.
The government on Thursday reported the deceleration of gross domestic product (GDP) in the second quarter of 2018 to six percent from quarter-ago’s 6.6 percent.
Six percent “is not a low number,” Espenilla said. “(It is) pretty decent growth by an economy in this time of uncertainty,” he said, stressing that “on balance the economy is on a strong footing.”
Asked for the possible impact of the rate hike in the country’s growth in the third quarter, Espenilla said people should not immediately correlate central bank’s rate decision to GDP, citing that economic developments that resulted to the GDP output in the second quarter “has nothing to do nor would be influenced by interest rate movements in the short run.” (PNA)
