BSP raises policy rates by 25 bps to 4.75%

The Bangko Sentral ng Pilipinas (BSP) on Thursday delivered its fifth consecutive rate hike this year, citing upside risks to the inflation outlook.

The policy-setting Monetary Board (MB) decided to raise the key overnight borrowing rate to 4.75 percent, BSP Deputy Governor Cyd N. Tuaño-Amador said in a press conference at the central bank headquarters in Manila.

The overnight lending rate was also raised by 25 bps to 5.25 percent and the overnight deposit rate to 4.25 percent.

The central bank’s new policy rates will take effect on Friday, November 16.

“The Monetary Board decided to raise the policy rate by 25 basis points given the upside risks to the inflation outlook and given that inflation expectations have remained elevated as supply-side and possible wage pressures continue to drive price developments,” Amador said.

“The Monetary Board deemed it necessary to respond with proactive policy action to help temper the risks to the inflation outlook, including those emanating from the continued uncertainty in the external environment amid tighter global financial conditions and trade tensions among major economies,” she added.

Inflation clocked in at 6.7 percent in October, unchanged from September but still the fastest since registering at 7.2 percent in February 2009.

Current economic conditions allow for an adjustment in policy rates, Amador noted.

“At the same time, the Monetary Board believes that prospects for the domestic economy remain generally favorable and allow some scope for a measured adjustment in the policy rate to rein in inflation expectations and preempt further second-round effects,” she said.

University of Asia and the Pacific School of Economics Dean Cid Terosa said higher interest rates may lead the public to spend less due to higher borrowing costs.

“The BSP rate hike is meant to control the rise in prices by making it more attractive to save than to spend,” he told GMA News Online.

“By stemming the upward pressure on prices, the BSP is helping ordinary Filipinos protect and preserve their purchasing power,” Terosa added.

The Monetary Board raised its inflation outlook for the year to 5.3 percent from 5.2 percent, BSP Deputy Director Dennis Lapid.

But it revised its 2019 inflation forecast to 3.5 percent from 4.3 percent, and its 2020 outlook to 3.3 percent from 3.2 percent.

These revisions reflect expectations of monetary authorities that the government’s anti-inflation measures are in place and working.

“This incorporates the impact of the rice tariffication bill, as well as the announced suspension of the excise tax on oil,” Lapid said

Lapid said the rate hike took into consideration the increases in global oil prices and the recent adjustments in transport fares.

The Land Transportation Franchising and Regulatory Board (LTFRB) increased the minimum jeepney fare to P10 from P8.

It also approved a P1 increase in the first five kilometers of bus fares in Metro Manila, and provisional fare adjustments for provincial bus operations. —VDS, GMA News