RATE HIKE ANEW. Bangko Sentral ng Pilipinas on Thursday (Nov. 17, 2022) announces another 75 basis points increase in its key rates, bringing the overnight reverse repurchase rate to 5 percent. This was made after monetary authorities noted that inflation outlook and risks remain on the upside until 2023. (PNA file photo) 

MANILA – The Bangko Sentral ng Pilipinas (BSP) delivered its earlier bid for a 75 basis points rate increase on Thursday, citing that risks to inflation continue to be on the upside but noted that economic recovery will cushion the impact of the tightening moves.
Effective Nov. 18, the central bank’s overnight reverse repurchase facility rate is at 5 percent, the overnight deposit rate at 4.5 percent and the overnight lending rate at 5.5 percent.
In a virtual briefing, BSP Governor Felipe Medalla said the seven-man policy-making Monetary Board (MB), which he chairs, has noted that core inflation, which excludes volatile items like food and oil, “has risen sharply in October, indicating stronger pass-through of elevated food and energy prices as well as demand-side impulses on inflation.”
The rate of price increases last October rose to its highest since December 2008 to 7.7 percent, with core inflation up at 5.9 percent from month-ago’s 5 percent.
The average inflation in the first 10 months this year stood at 5.4 percent, higher than the government’s 2-4 percent target band.
The BSP also hiked its inflation forecast for this and next year to 5.8 percent and 4.3 percent, respectively. These were previously at 5.4 percent for 2022 and 4 percent for 2023.
On the other hand, the average inflation forecast for 2024 was reduced from 3.2 percent to 3.1 percent.
Medalla said the risk to the rate of price increases further leans to the upside based on their latest outlook due to higher prices of commodities in the international market given the elevated fertilizer cost, trade restrictions and adverse weather conditions.
He said the impact of weather disturbances on fruit and vegetables, supply disruption on several items like sugar and meat, and pending rate hike petitions for fare contribute to the upside risks.
“Given the increased likelihood of further second-round effects, persistent inflationary pressures, and the predominance of upside risks to the inflation outlook, the Monetary Board recognized the need for aggressive monetary policy action to safeguard price stability,” he added.
Medalla said “with the strong growth of the economy in the third quarter of 2022, domestic demand is seen to hold firm owing to improved employment outturns, investment activity, and consumer spending.”
This, after the third quarter economic output posted a higher-than-expected 7.6 percent growth, up from the upwardly revised 7.5 percent in the previous quarter.
Growth, as measured by gross domestic product (GDP), averaged at 7.8 percent as of end-September this year, surpassing the government’s 6.5 to 7.5 percent growth assumption.
The 75 basis points increase in the BSP’s key rates during the day has been announced by Medalla earlier in the month following the same jump in the Federal Reserve’s key rates.
On Thursday, Medalla said Philippine monetary authorities need to be aggressive in their moves because of the uncertainties of the current period, with the Federal Reserve doing further tightening to address the elevated inflation rate in the US.
He said the Fed moves have fueled the US dollar’s appreciation, which has hurt the peso and other currencies.
Medalla said although people expect the continued increases in the prices of commodities, the central bank has to be aggressive and transparent about it.
“We cannot afford to allow prices to rise just because people expect it to rise. The best way to do that is to have tight monetary policy,” he added.
Medalla said BSP officials consider the forward guidance given to the market has benefited the peso.
“In our assessment, it worked although there are many forces working together,” he said, citing also the weakening of the US dollar lately. (PNA)