The Bangko Sentral ng Pilipinas (BSP) on Thursday made good on its promise to act more vigorously against stampeding inflation and raised its policy rate not by 25 basis points as some expected but by 50 basis points.
This lifted the rate at which it borrows from banks to 3.5 percent from only 3 percent and its lending rate to four percent from only 3.5 percent, effective today, Friday.
“At its meeting on monetary policy, the Monetary Board decided to raise the interest rate on the BSP’s overnight reverse repurchase (RRP) facility by 50 basis points to four percent, effective Friday, 10 August 2018. The interest rates on the overnight lending and deposit facilities were likewise raised accordingly.
“In deciding to raise the BSP’s policy interest rate anew, the Monetary Board noted that latest baseline forecasts have shifted higher over the policy horizon, indicating some risk of inflation exceeding the target in 2019. Upside risks also continue to dominate the inflation outlook, as the sustained increase in core inflation suggests broadening price pressures amid resilient aggregate demand conditions. Meanwhile, inflation expectations remain elevated, although staying w ithin the target of three percent plus or minus one percentage point for 2019.
“For these reasons, the Monetary Board (MB) deemed stronger monetary action to be necessary to rein in inflation expectations and prevent sustained supply-side price pressures from driving further second-round effects, even as the previous monetary policy responses continue to work their way through the economy.
“The MB believed that the series of policy rate adjustments thus far in 2018 will help reduce further the risks to inflation, including those emanating from the ongoing normalization of monetary policy in advanced economies and its impact on the foreign exchange market, and bring inflation tow ard a target-consistent path over the medium term.