MANILA, Philippines– The Bangko Sentral ng Pilipinas (BSP) Monetary Board on Thursday, August 18, hiked key interest rates by 50 basis points to further anchor inflation expectations.

This brings the key policy rate to 3.75%. The overnight deposit facility and overnight lending facility were likewise increased to 3.25% and 4.25%, respectively.

The new rates will take effect on Friday, August 19.

BSP Governor Felipe Medalla said that average inflation is projected to breach the upper end of the 2%- to 4% target range at 5.4%.

“Upside risks also continue to dominate the inflation outlook up to 2023 due to the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, the sharp increase in the price of sugar, as well as pending petitions for transport fare increases. Meanwhile, the impact of a weaker-than-expected global economic recovery as well as the resurgence of local COVID-19 infections continue to be the main downside risks to the outlook,” Medalla said.

Inflation in July jumped to 6.4%, higher than the 2% to 4% target for the entire year. (IN CHARTS: Inflation eases in Metro Manila, regions feel pinch)

Interest rates influence consumer and business spending. They have an impact on cost of borrowing as well as return on savings.

Higher interest rates mean higher bank loan costs, and consumers must cut back on spending. (READ: PRICE WATCH 2022: Food, fuel products in the Philippines)

High interest rates also encourage more people to save because they receive more on their savings. But demand falls and companies sell less. – Rappler.com