PHL hikes rates to temper inflation

The Bangko Sentral ng Pilipinas (BSP) surprised markets on Thursday with an off-cycle interest rate hike amid threats of “broadening price pressures.”

In a virtual announcement, BSP Governor Felipe M. Medalla said the Monetary Board decided to raise the interest rate on the BSP’s overnight reverse repurchase facility by 75 basis points to 3.25 percent, effective today, July 14.

Accordingly, the interest rates on the overnight deposit and lending facilities were raised to 2.75 percent and 3.75 percent, respectively.

“In raising the policy interest rate anew, the Monetary Board recognized that a significant further tightening of monetary policy was warranted by signs of sustained and broadening price pressures amid the ongoing normalization of monetary policy settings. The Monetary Board noted that favorable conditions arising from the strong rebound in growth thus far in the year suggest that the domestic economy can accommodate a further tightening of monetary policy settings,” Medalla said.

“By taking urgent action, the Monetary Board aims to anchor inflation expectations further and temper mounting risks to the inflation outlook. In particular, policy action is intended to help manage spillovers from other countries that could potentially disanchor inflation expectations,” he added.

Inflation in June hit its highest in about 3 years at 6.1 percent. The BSP also said average inflation for 2022 and 2023 is projected to miss the target range of 2 to 4 percent.

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