Metro Manila, June 24 ------ The Bangko Sentral ng Pilipinas raised interest rates by another 25 basis points to 2.50% as it cracks down on surging inflation.
The Monetary Board’s latest move follows the 25-bps rate hike it announced in May, which started a hiking cycle that placed BSP among other central banks that have begun policy tightening. The BSP also raised the overnight deposit rate to 2% and lending rate to 3%. Banks and lending companies turn to central bank rates as a benchmark for their loan, credit card, and deposit rates. Prices of basic goods rose 5.4% in May, now the fastest pace since November 2018. This brought year-to-date inflation to 4.1%, officially breaching the BSP’s 2-4% target band. The central bank also announced the upward revision of its full-year forecasts: from 4.6%, inflation is seen to average 5% this year. For 2023, it's estimated at 4.2% — up from the prior 3.9% forecast. "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," said BSP Governor Benjamin Diokno. Central bank authorities also project inflation to hit 3.3% in 2024, which is within target.
Asked on future monetary policy actions, BSP Deputy Governor Francisco Dakila Jr. stressed anew that authorities remain data-driven. Still, it can be seen that the general direction is towards normalization and exit from non-monetary interventions during the pandemic, he further said. Dakila likewise assured that the impact of current policy tightening on economic growth is "very minimal" and that the outlook remains in line with Development Budget Coordination Committee figures. The DBCC expects annual growth to average within 7-8% this year, a slight downgrade owing to external risks like the Ukraine-Russia war, China's economic slowdown, and the United States' own monetary policy normalization. "This comment, viewed together with the upward revision to the 2023 CPI (Consumer Price Index) forecast, could potentially entail a longer and/or more aggressive rate hiking cycle," said ANZ Research in a note, referring to Dakila's remarks.
ANZ Research expects the BSP's hiking cycle to continue until the first quarter of 2023, with interest rates ending at 4% then. "Our previous forecast that the policy rate would end the year at 2.75% now looks too dovish given the BSP’s hawkish comments in the press conference. We are changing our end-2022 forecast to 3.25%, but this is still less than is being priced in by financial markets" said Capital Economics senior Asia economist Gareth Leather. For Nomura Chief ASEAN Economist Euben Paracuelles, the BSP's policy rate is still relatively low. The central bank's monetary policy, however, has to be combined with non-monetary measures to be able to tame inflation, he added. "There's scope for productivity and logistics improvements that can be done although I think the results will not be immediate. Fiscal policy can help a little bit, maybe some targeted subsidies to certain sectors to mitigate impact of higher prices, and maybe even (help in the) reduction in prices of input costs by reducing tariffs or excise tax on a temporary basis," he explained.
Source: cnnphilippines.com
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