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Bangko Sentral delivers back-to-back rate hikes

The Bangko Sentral ng Pilipinas (BSP) tightened key policy rates anew on Wednesday, as inflation expectations remained “elevated” for the year.

The central bank’s policy-setting Monetary Board (MB) decided to raise key rates by 25 basis points, BSP Governor Nestor Espenilla Jr. said.

The BSP’s overnight borrowing rate was raised to 3.50 percent, the overnight lending rate was increased to 4.00 percent, and the overnight deposit rate to 3.00 percent.

“In deciding to raise the BSP’s policy interest rate anew, the Monetary Board noted that inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action,” he said.

The board last decided to increase policy rates also by 25 basis points on May 10.

BSP Deputy Governor Diwa Guinigundo noted the board still sees inflation registering faster than the government target of 2 to 4 percent this year, albeit slightly slower than expected.

The central bank now expects inflation to settle at 4.5 percent for 2018 from a previous forecast of 4.6 percent.

Guinigundo noted the perception that inflation is slowing is based on the lower-than-expected inflation in May which clocked in at 4.6 percent, slower than market expectations.

This year’s inflationary drivers are the sustained “robustness” in economic activity, the positive base effects in June to August due to the oil price assumptions, higher minimum wages, and the implementation of higher excise taxes on tobacco products.

“While the latest baseline forecasts have shifted lower for 2018 to 2019, upside risks continue to dominate the inflation outlook, even as various measures of core inflation continue to rise,” Espenilla noted.

“Moreover, the impact of international oil and commodity price movements on overall inflation is expected to be stronger given prevailing robust aggregate demand conditions,” he said.

The central bank is staying vigilant about further developments on the policy horizon.

“The Monetary Board also emphasized the BSP’s continued vigilance against developments, including excessive peso volatility, that could affect the outlook for inflation,” he said.

“The BSP is prepared to take further policy action as needed to achieve its price and financial stability objectives,” he said. —VDS, GMA News