MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) again hiked interest rates on Thursday, November 15, to rein in stubbornly high inflation.
The latest move of the central bank brings the overnight reverse repurchase (RRP) rate to 4.75%.
The overnight lending and deposit facilities were also adjusted to 5.25% and 4.25%, respectively.
The BSP has hiked interest rates for a total of 175 basis points this year, playing catch up with the rapid climb of inflation.
Inflation in October remained elevated at 6.7%.
“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,” the BSP said.
The central bank projects the average inflation for 2018 to settle at 5.3% from the previous estimate of 5.2%.
It also sees inflation significantly dropping in 2019 to 3.5% from 4.3% due to the likely passage of the rice tariffication bill and the suspension of the next round of fuel excise taxes under the Tax Reform for Acceleration and Inclusion law.
For 2020, inflation is expected to settle at 3.3%.
“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,” the BSP said.
Raising interest rates creates a ripple effect across the economy. It generally means higher borrowing costs for consumers and would lead to people spending less.
Less spending in the economy slows down the demand for goods and may slow down economic growth. – Rappler.com
Editor’s Note: An earlier version of this story stated that the inflation rate in October was 5.7%. This has been corrected to 6.7%.