BSP pegs July inflation at 5.6 - 6.4%

The Bangko Sentral ng Pilipinas (BSP) is expecting this month’s inflation to further quicken with the upper end of its forecast range seen to exceed last month’s print.

In its month-ahead forecast, the Central Bank said July inflation is seen to settle within the range of 5.6% to 6.4%.

The upper end of the BSP forecast is faster than the 6.1% inflation —the rate of increase in the prices of goods and services— recorded in June, the fastest print since the 6.9% recorded in October 2018 and the same reading seen in November 2018.

“Inflation for the month was driven by the continued increase in food prices, further transport fare hikes, and peso depreciation,” the BSP said.

“Meanwhile, lower oil prices, reduction in electricity rates in Meralco-serviced areas, and lower pork prices are likely to temper in part said price pressures,” it said.

The central bank will continue to closely monitor emerging price developments to enable timely intervention to arrest emergence of further second-round effects, consistent with BSP’s mandate of price and financial stability.

BSP Governor Felipe Medalla earlier signaled that the BSP will continue its monetary policy tightening cycle to keep inflation in check after the US central bank delivered a huge interest rate hike of 75 basis points.

Monetary policy or interest rates are among the tools used by central banks to stabilize inflation through controlling money supply by raising borrowing costs.

Higher borrowing costs could make consumers and businesses spend less, therefore reducing economic activity or lowering demand and eventually lowering prices.

This month, the BSP delivered a hawkish 75 basis points increase in key policy rates, bringing the overnight reverse repurchase facility to 3.25%, overnight deposit facility at 2.75%, and overnight lending facility at 3.75%.

The latest hikes bring the policy rates back to their pre-pandemic levels, or those seen in February 2020.

This is also the most aggressive rate hike of the BSP so far since the interest rate corridor was implemented in June 2016, and the first off-cycle adjustment since April 2020. -- BAP, GMA News