The Bangko Sentral ng Pilipinas (BSP) on Monday maintained its policy rate at 6.5 percent after assessing food and transport prices could increase further.

Accordingly, the interest rate for overnight deposits remains at 6 percent and 7 percent for lending facilities.

“I sense that the upside risks have become worse, so that would make us somewhat more hawkish than before,” BSP Governor Eli Remolona Jr. said.

March inflation rose to 3.7 percent from February’s 3.4 percent, according to the Philippine Statistics Authority.

The BSP Monetary Board raises its policy rate to prevent inflation from surging and stabilize inflation by 2 to 4 percent. It has hiked rates by 450 basis points since May 2022.

4% ‘risk-adjusted’ inflation

It now expects a higher risk-adjusted inflation of 4 percent, slightly up from the 3.9 percent estimated in its previous meeting.

“Possible further price pressures are linked mainly to higher transport charges, elevated food prices, higher electricity rates, and global oil prices,” Remolona said.

“Potential minimum wage adjustments could also give rise to second-round effects,” he added.

The government statistics show food prices rose to 5.7 percent in March from 4.8 percent in February, while transport prices increased to 2.1 percent from 1.2 percent.

Remolona said food prices might increase due to “supply shocks” stemming from El Niño, while oil prices might rise due to the Israel-Hamas and Russia-Ukraine wars.

He said the BSP supports the non-monetary measures of the national government to increase food supply, including farmer subsidies, irrigation projects, and lower tariffs on rice imports.

BSP Senior Assistant Governor Illuminada Sicat said inflation could further increase for the rest of the second quarter partly due to the statistical principle of positive base effects, before returning to the BSP’s target range in the third and last quarters.

“We expect overall inflation to be within the target over the 12 months,” she said.