Philippine central bank hikes interest rate to tame inflation

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IANS | 23 Mar, 2023
The Philippine central bank on Thursday announced its decision to raise the interest rate on the overnight reverse repurchase facility by 25 basis points to 6.25 per cent effective from Friday to tame inflation.

Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said the Monetary Board also raised the overnight deposit and lending rates to 5.75 per cent and 6.75 per cent, respectively, reports Xinhua news agency.

"The Monetary Board's decision was based on the sum of new information and its assessment of the effects of past policy actions, which warranted a continuation of monetary tightening to anchor inflation expectations," Medalla told reporters here.

With core inflation rising in February despite a modest decline in headline inflation, he said that "further monetary policy action was deemed necessary to address broadening price impulses emanating from robust domestic demand and lingering supply-side constraints".

The Governor said the latest baseline projections point to an elevated path over the near term.

Average inflation is projected to settle above the upper end of the 2-4 per cent target range at 6.0 per cent in 2023 before returning to the target at 2.9 per cent in 2024.

"The inflation forecasts reflect the cumulative impact of the BSP's policy rate adjustments and the slower growth outlook on both the domestic and external fronts," Medalla said.

"The effect of supply shortages on domestic food prices remains a concern, while the potential impact of higher transport fares, increasing electricity rates, and above-average wage adjustments in 2023 point to the broader-based nature of price pressures," he added.

Medalla said the impact of a weaker-than-expected global economic recovery continues to be the primary factor that could dampen inflation.

Given these considerations, he said the board decided that follow-through monetary action would help ease persistent price pressures from here and abroad and further realign inflation expectations with the target band over the policy horizon.

"Further policy tightening will also preserve the buffer against external spillovers amid heightened uncertainty and volatility emanating from financial sector distress in advanced economies," the Governor said.

Nevertheless, even as the BSP has assessed that the Philippine banking system is resilient to evolving market conditions, Medalla said the BSP "continues to keep a watchful eye over developments in the international banking industry".