Philippine Central Bank Raises Key Interest Rate Further

The Philippines' central bank on Thursday raised its key interest rate again by 50 basis points, as widely expected, and signaled further tightening because inflation is likely to remain above the target.

The Monetary Board, led by Governor Felipe Medalla, decided to raise its benchmark overnight reverse repurchase facility rate by 50 basis points to 3.75 percent, the Bangko Sentral Ng Pilipinas said.

Consequently, interest rates on overnight deposits and loans were raised to 3.25 percent and 4.25 percent, respectively.

This was the fourth consecutive rate hike after a quarter point increase in May, which was the first hike since 2018.

The inflation rate rose from 6.1 percent in June to 6.4 percent in July, which was the highest increase since October 2018.

The central bank revised up its inflation projections for 2022. The bank projected average inflation to breach the upper end of the 2-4 percent target range at 5.4 percent in 2022. Meanwhile, the forecasts for 2023 and 2024 were lowered to 4.0 percent and 3.2 percent, respectively.

The bank observed that upside risks continue to dominate the inflation outlook through 2023 because of higher non-oil prices, a shortage of domestic fish supply, and pending petitions to increase transport fares.

Besides, the impact of a weaker-than-expected global economic recovery as well as the resurgence of local COVID-19 infections continue to be the main downside risks to the outlook, the bank said.

Current overall domestic conditions in the economy remained strong despite some moderation in economic activity in recent months, policymakers assessed. This outcome was due to improved employment out-turns and by ample liquidity and credit, the bank said.

The BSP also noted that the favorable growth outcome in the first half of the year also gives the license to act against inflation pressures while allowing domestic demand to sustain its recovery momentum amid prevailing headwinds.

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