HIKE. Bangko Sentral ng Pilipinas' (BSP) key policy rates will increase by another 75 basis points this month following the same jump in the Federal Reserve funds rate on Thursday (Manila time) (Nov. 3, 2022). BSP Governor Felipe Medalla said the rate hike is needed to "maintain the interest rate differential" with the Fed. (Photo courtesy of the BSP)
MANILA – The Bangko Sentral ng Pilipinas (BSP) is set to increase its key rates by 75 basis points on Nov. 17 to ensure interest rate differential following the same decision by the Federal Reserve on its own rates on Thursday.
In a Viber message to reporters, BSP Governor Felipe Medalla said the Fed’s decision is widely expected and supports the BSP’s stance to hike its policy rate by the same amount in its next policy meeting.
“The BSP deems it necessary to maintain the interest rate differential prevailing before the most recent Fed rate hike, in line with its price stability mandate and the need to temper any impact on the country’s exchange rate of the most recent Fed rate hike,” he said.
Medalla said the hike is not an off-cycle decision since it “will be effective after the Nov. 17 meeting."
The 75 basis points increase in the BSP rate will be the second of the same level following the off-cycle decision last July.
The rate adjustment will bring the BSP’s overnight reverse repurchase (RRP) rate to 5 percent, the overnight lending rate to 5.5 percent, and the overnight deposit rate to 4.5 percent.
Since last May, the BSP’s key rates have been increased by a total of 225 basis points, which monetary authorities traced to the need to help address the elevated domestic inflation rate after noting that the impact of the rate adjustments is countered by the continued recovery of the domestic economy.
This, as the rate of price increases continues to rise to its highest since four years ago given the jumps in oil and non-oil commodities in the international market, which has impacted domestic prices.
Inflation last September rose to 6.9 percent, its highest since October 2018, following a deceleration to 6.3 percent in the previous month, which ended the five-month rise until last July.
It breached the government’s 2 to 4 percent target band last April when it accelerated to 4.9 percent.
The average inflation in the first nine months this year stood at 5.1 percent.
The BSP forecasts inflation to average at 5.6 percent this year, 4.1 percent next year, and 3 percent in 2024.
“The BSP remains vigilant in monitoring all risks to the inflation outlook and is prepared to take necessary policy actions to bring inflation toward a target-consistent path, wherein the average year-on-year headline inflation will be within the target band of 2-4 percent in the second half of 2023 and in the full year of 2024,” Medalla said. (PNA)
