Philippine hikes rates by 50 bps, keeps hawkish view

Philippine hikes rates by 50 bps, keeps hawkish view

18 Aug    Finance News

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MANILA — The Philippine central bank raised its benchmark interest rates by half a percentage point on Thursday, as expected, and kept the door open for further hikes to bring inflation back within its target range.

The Bangko Sentral ng Pilipinas (BSP) lifted the overnight reverse repurchase facility rate to 3.75%, as predicted by most economists in an Aug. 8-15 Reuters poll.

The rates on the overnight deposit and lending facilities were raised by 50 basis points to 3.25% and 4.25%, respectively.

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“The Monetary Board deemed further monetary action to be necessary to anchor inflation expectations and avoid a further breach in the inflation target over the policy horizon,” BSP Governor Felipe Medalla told reporters.

The BSP, which has raised rates by a total of 175 basis points this year, remains committed to “take all necessary actions to steer inflation towards a target-consistent path over the medium term,” Medalla added.

Philippine inflation, which hit a near four-year high of 6.4% last month, averaged 4.7% in January to July, above the BSP’s 2%-4% target band for the year.

Adding pressure through imported inflation, the Philippine peso has fallen nearly 9% this year against the dollar – the third worst performer among Asian currencies.

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The BSP lifted its 2022 average inflation forecast to 5.4% from 5.0%. However, it lowered the average inflation forecast to 4.0% from 4.2% for 2023, and to 3.2% from 3.3% for 2024.

Despite the domestic economy’s slowdown in the second quarter, when inflation hurt consumer spending, Medalla said overall domestic demand conditions have generally held firm, supported by improved employment numbers and ample liquidity.

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Ten out of 16 economists in the Aug. 8-15 Reuters poll forecast another 25 bps basis points hike at the September meeting, taking rates to 4.00%, where they were before the COVID-19 pandemic.

Seven economists forecast rates would reach 4.25% or higher by end-2022, six expected rates to reach 4.00%, while the remaining three said rates would be 3.75% or lower. (Reporting by Neil Jerome Morales, Karen Lema and Enrico Dela Cruz; Editing by Himani Sarkar)

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