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BSP cools sizzling prices

Upside risks continue to dominate the inflation outlook up to 2023

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In an effort to cool rising prices and in the wake of the recent 75 basis points increase in us policy rates, the Monetary Board (MB) raised the cost of money by 25 basis points to 2.5 percent.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the overnight deposit and lending rates were raised to 2 percent and 3 percent, respectively.

MB noted 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.

Impact of a weaker-than-expected global recovery and the possible reimposition of local Covid-19 restrictions amid an uptick in infections continue to be the main downside risks to the outlook.

Moreover, the BSP’s latest baseline forecasts have shifted higher, with average inflation projected to breach the upper end of the 2 percent to 4 percent target range at 5 percent in 2022 and 4.2 percent next year.

Outlook remains bleak

However, average inflation is also seen to subsequently decline to 3.3 percent in 2024. Inflation expectations have continued to rise. While they remain within the target range until 2024, the data showed the risk of further second-round effects arising from sustained price pressures is rising.

Given the 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.

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