BSP scales down on policy tightening with 25 bps hike

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday continued with its policy tightening, as it hiked key policy rates by 25 basis points in line with market expectations.

According to BSP Governor Felipe Medalla, the key rates will be hiked to 5.75% for the overnight deposit facility, 6.25% for the overnight borrowing facility, and 6.75% for the overnight lending facility effective Friday, March 24, 2023.

The central bank last month hiked rates by 50 basis points, which brought the benchmark rate the same as levels last seen 15 years ago in July 2007, and the highest since it was at 7.5% in May of the same year.

“The Monetary Board’s decision was based on the sum of new information and its assessment of the effects of past policy actions, which warranted a continuation of monetary tightening to anchor inflation expectations,” he said in a briefing.

“With core inflation rising in February despite a modest decline in headline inflation, further monetary policy action was deemed necessary to address broadening price impulses emanating from robust domestic demand and lingering supply-side constraints,” he added.

The central bank now expects inflation to average 6.0% this year, slower than the 6.1% it projected in February. It also downgraded its 2024 projection to 3.0% from 3.1%.

The central bank said risks to inflation continue to tilt heavily towards the upside, with the effect of supply shortages on domestic food prices remaining a concern.

It also took into consideration the impact of higher transport fares, electricity rates, and the above-average wage adjustments in 2023 which could drive prices upward.

“Given these considerations, the Board decided that follow-through monetary action would help ease persistent price pressures from here and abroad as well as further realign inflation expectations with the target band over the policy horizon,” Medalla said.

The latest increase comes as the Federal Reserve also hiked its key rates by 25 basis points, lifting the target range to 4.75% to 5.00% following its two-day policy meeting this week.

Medalla maintained, however, that the tightening was already decided upon by the technical committee even before the Federal Reserve announced its decision.

Asked regarding the possibility of a pause on tightening, Medalla said that the central bank will continue to be data dependent.

“This is where the phrase we are data dependent is very, very apt. In the past, we were more or less sure that the next policy rate will be another one, another increase. Now, clearly, it depends on the data,” he said.

“Moving forward, the BSP reassures the public that the Philippine banking system is resilient to evolving market conditions, the BSP continues to keep a watchful eye over developments in the international banking industry,” Medalla said. —VAL, GMA Integrated News