BSP hikes policy rates by 25 bps as inflation proves worrisome

The Bangko Sentral ng Pilipinas (BSP) decided on Thursday to raise its key policy rates by 25 basis points (bps) on the heels of concerns about an accelerating inflation.

The policy-setting Monetary Board (MB) decided to the overnight borrowing rate to 3.25 percent from 3 percent.

Accordingly, the board also raised the overnight lending rate from 3.5 percent and the overnight deposit rate from 2.5 percent.

The latest policy decision comes more than three years after the central bank last raised policy rates in September 2014.

“In deciding to raise the policy interest rate, the Monetary Board noted that latest forecasts have further shifted higher, indicating that inflation pressures could become more broad-based over the policy horizon,” BSP Governor Nestor Espenilla Jr., said in a press conference right after the policy-setting meeting.

In the same briefing, Deputy Governor Diwa Guinigundo said the latest inflation forecasts show that this year’s inflation rate is expected to settle at 4.6 percent from an earlier forecast of 3.9 percent.

Among the inflation drivers are higher prices of global crude and sin products such as tobacco, Guinigundo noted.

Espenilla said the adjustment was warranted as inflation remains tilted towards the upside.

“The Monetary Board assessed that the balance of risks to the inflation outlook continues to lean toward the upside, with price pressures emanating from possible adjustments in transport fares, utility rates, and wages,” the governor said.

“Given these considerations, the Monetary Board believes that a timely increase in the BSP’s policy interest rate will help arrest potential second-round effects by tempering the buildup in inflation expectations,” he said.

The central bank chief noted the central bank is likewise prepared to adjust policy rates anew, should macroeconomic conditions warrant such action.

“Looking ahead, the BSP stands ready to undertake further policy action as necessary to ensure the achievement of its price and financial stability objectives,” he said. —VDS, GMA News