Bangko Sentral hikes interest rates for 4th time, raises inflation forecasts

Ralf Rivas
Bangko Sentral hikes interest rates for 4th time, raises inflation forecasts
The Bangko Sentral ng Pilipinas hikes interest rates by 50 basis points. It also raises its inflation forecasts for 2018 and 2019.

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) fulfilled its promise of strong monetary action to “further anchor inflation expectations,” as it raised interest rates by 50 basis points (bps).

The decision brings the overnight reverse repurchase (RRP) rate to 4.5%.

The overnight lending and deposit facilities were also adjusted to 5% and 4%, respectively.

“The Monetary Board recognized that a further tightening of monetary policy was warranted by persistent signs of sustained and broadening price pressures,” the BSP said.

This is the 4th time this year that the BSP has raised interest rates, following increases last May 10, June 20, and August 9.

The central bank also expects supply-side forces to continue to drive inflation in the coming months, with indications of second-round effects.

It said domestic demand has been generally firm amid previous monetary policy responses which “continue to work their way through the economy.”

Higher interest rates would discourage banks from borrowing from other banks. This also means that banks would be more careful to shell out funds and give out loans to consumers.

BSP Monetary and Economics Sector-in-Charge Francisco Dakila Jr said they have already monitored an increase in lending rates and fixed income rates in the system resulting from the initial 100 bps hike.

Revised inflation forecasts

Dakila also announced that the BSP hiked its inflation forecasts for 2018 and 2019.

The BSP now sees 2018 inflation averaging at 5.2%, from 4.9%. The BSP also projected 2019 inflation to settle at 4.3%, from 3.7%.

Dakila noted that 2019 inflation may fall within the government’s target range of 2% to 4% if rice tariffication is enacted into law.

Meanwhile, the BSP maintained its forecast for 2020 at 3.2%.

Inflation jumped to 6.4% in August and is expected to hit another fresh high in September.

Analysts also projected that prices would soar higher after Typhoon Ompong (Mangkhut) damaged at least P26.7 billion worth of agricultural goods. – Rappler.com

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Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.