The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, on Thursday raised for the second time this year the benchmark overnight borrowing rate by 25 basis points to 2.5 percent to help contain the rising inflation rate.
Outgoing BSP Governor Benjamin Diokno, in his last policy meeting before taking the helm of the Department of Finance in the incoming Marcos administration, said the board also hiked the interest rates on the overnight deposit and lending facilities to 2.0 percent and 3.0 percent, respectively.
“In deciding to raise the policy interest rate anew, the Monetary Board noted that upside risks continue to dominate the inflation outlook up to 2023, with pressures emanating from the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, as well as pending petitions for transport fare hikes due to elevated oil prices,” Diokno said.
He said the impact of a weaker-than-expected global recovery and the possible re-imposition of local COVID-19 restrictions amid an uptick in infections continued to be the main downside risks to the outlook.
“The BSP’s latest baseline forecasts have shifted higher, with average inflation projected to breach the upper end of the 2 to 4 percent target range at 5.0 percent in 2022 and at 4.2 percent in 2023. However, average inflation is also seen to subsequently decline to 3.3 percent in 2024,” Diokno said.
He said inflation expectations also continued to rise. He said while they remained within the target range for 2023 to 2024, the elevated expectations underscore the risk of further second-round effects arising from sustained price pressures.
“Given these considerations, the Monetary Board believes that a follow-through increase in the policy rate enables the BSP to withdraw its stimulus measures while safeguarding macroeconomic stability amid rising global commodity prices and strong external headwinds to domestic economic growth,” Diokno said.
The Monetary Board reiterated its support for the carefully-coordinated efforts of other government agencies as part of a whole-of-government approach in implementing non-monetary interventions to mitigate the impact of persistent supply-side factors on inflation.
“In line with the ongoing normalization of its monetary policy settings, the BSP is prepared to take all necessary policy action to bring inflation toward a target-consistent path over the medium term and deliver on its primary mandate of price stability,” Diokno said.
The board raised the average inflation forecast this year to 5 percent from the 4.6 percent estimate in the May 2022 meeting. Inflation is seen to average 4.2 percent in 2023, up from 3.9 percent previously.
BSP Deputy Governor Francisco Dakila said for 2024, inflation would likely average 3.3 percent or within the target range of 2 percent to 4 percent.
“The reasons for the inflation forecast revisions are the higher-than-expected inflation in May 2022 and the expected high inflation in June. Other reasons are higher oil prices, and the approved provisional jeepney fare hikes,” Dakila said.
Dakila said inflation might average by 5.6 percent in the second half of the year on higher global commodity prices and domestic goods and services.
The Monetary Board hiked by 25 basis points the percent policy rate to 2.25 percent on May 19, 2022, the first time in 18 months since it was cut by 25 basis points to 2 percent in November 2020.