MANILA -- The Bangko Sentral ng Pilipinas (BSP) on Thursday raised key rates by another 50 basis points, for the same reason it made a similar move just six weeks ago, on “persistent signs of sustained and broadening price pressures.”
To date, the central bank’s key rates have been hiked by 150 basis points, bringing the overnight reverse repurchase (RRP) rate to 4.5 percent, the repurchase (RP) rate to 5 percent, and the overnight deposit rate to 4 percent, effective September 28.
When the adjustment takes effect on Friday, the RRP will be at its highest since March 2009, when it was at 4.75 percent.
Reading the central bank’s statement, BSP Deputy Governor Chuchi Fonacier said risks to inflation outlook are “still leaning toward the upside.”
“With supply-side forces expected to continue to drive inflation in the coming months, inflation expectations have remained elevated amid indications of second-round effects,” she said.
Average inflation as of end-August this year stood at 4.8 percent, higher than the 2 percent to 4 percent target band until 2020.
Last August alone, inflation rose to a multiyear high of 6.4 percent from month-ago’s 5.7 percent due to the faster rate of price increases of fish, rice, meat and vegetables due to supply-side factors.
Monetary authorities said inflation is still seen to peak in the third quarter this year.
Despite the rise in inflation, Fonacier said domestic demand conditions “have generally held firm, even as the previous monetary policy responses continue to work their way through the economy.”
“The Monetary Board believed that a tighter monetary policy stance will help steer inflation toward a target-consistent path over the medium term by reducing further risks to the inflation outlook, including those emanating from exchange rate volatility given the continued uncertainty in the external environment amid geopolitical tensions and the normalization of monetary policy in advanced economies,” she said.
“The BSP reassures the public of its strong commitment to take all necessary policy actions to address the threat of high inflation and deliver on its primary mandate of price stability,” she added.
Asked for future policy rate decisions vis-a-vis the elevated inflation environment, BSP Deputy Governor Maria Almasara Cyd N. Tuano-Amador said “all the actions of the Monetary Board will be data-dependent.”
During the same briefing, BSP Assistant Governor Francisco G. Dakila Jr. said the 100 basis points increase in the key rates as of last August has induced about 84.2 basis points on banks’ lending rates and about 11 basis points on the bellwether 91-day Treasury bill (T-bill).
He said it would be difficult to determine the exact impact of the rate hikes on domestic growth but stressed that “economic growth remains very robust.”
In the second quarter of 2018, growth, as measured by the gross domestic product (GDP), slowed to 6 percent from quarter-ago’s 6.6 percent.
Amador said the central bank’s objective “is to stabilize the macroeconomic environment” to help people make reasonable business decisions.
She added that the full impact of the 100-basis points increase in BSP rates “will be felt within a one-year cycle”, thus, it is still difficult to check end-results on growth.
“Six percent is still respectable and above-trend growth,” Amador said.
She added that the 25 basis points increase in the Federal Reserve’s key policy rates this week to 2 percent to 2.25 percent has “already (been) anticipated and incorporated in the BSP decision.”
“It was part of the decision set,” Amador said, adding that the “interest rate differential is also one factor that we are looking at.” (PNA)
