BSP raises policy rates by 50 basis points

The Bangko Sentral ng Pilipinas (BSP) raised its key policy rates anew on Thursday, the third and the most aggressive move of the central bank so far this year in light persistent inflationary concerns.

The decision reached by the BSP’s policy setting Monetary Board was prompted by current inflation conditions, BSP Governor Nestor Espenilla Jr. said in a press conference.

The overnight borrowing rate was increased to 4.00 percent, while the overnight lending rate was adjusted to 4.50 percent and the overnight deposit rate to 3.50 percent.

The interest rate adjustments will take effect on Friday, August 10.

“In deciding to raise the BSP’s policy interest rates anew, the Monetary Board noted that latest baseline forecasts have shifted higher over the policy horizon,” Espenilla told reporters.

“Upside risks also continue to dominate the inflation outlook, as the sustained increase in core inflation suggests broadening price pressures amid resilient aggregate demand conditions.”

This is the third rate hike by the BSP so far, after tightening policy rates by 25 basis points each in May and in June.

The BSP now expects inflation to clock in at 4.9 percent this year, faster than its earlier forecast of 4.5 percent.

“For 2018, we’re looking at four factors behind the increase in our forecast,” BSP Deputy Governor Diwa Guinigundo told reporters in the same briefing.

He cited an increase in jeepney fares, higher water prices in July, higher excise taxes on tobacco products, and higher Dubai oil prices.

Such factors demanded a strong policy action from the board, Espenilla also noted.

“For these reasons, the Monetary Board deemed stronger monetary action to be necessary to rein in inflation expectations and prevent sustained supply-side price pressures from driving further second-round effects,” Espenilla said.

“The BSP reiterates its strong commitment and readiness to take all necessary policy actions to address the threat of high inflation and deliver on its primary mandate of price stability,” he added. —VDS, GMA News