The Bangko Sentral ng Pilipinas (BSP) on Thursday delivered a surprise policy hike, increasing key rates by another 75 basis points a month ahead of its next scheduled meeting.
In a surprise virtual conference on Thursday, BSP Governor Felipe Medalla said the hikes take effect the same day, July 14 — overnight reverse repurchase facility to 3.25%, overnight deposit facility at 2.75%, and overnight lending facility at 3.75%.
“The Monetary Board recognized that a significant further tightening of monetary policy was warranted by signs of sustained and broadening price pressures amid the ongoing normalization of monetary policy settings,” he said.
The latest hikes bring the policy rates back to their pre-pandemic levels, or those seen in February 2020.
It is also the most aggressive rate hike of the BSP so far since the interest rate corridor was implemented in June 2016, and the first off-cycle adjustment since April 2020.
The Philippines joins a number of countries which hiked policy rates this week, including Korea and Singapore.
Just last week Medalla signaled a rate hike of 50 basis points in the next scheduled meeting on August 18, 2022.
Still, inflation has continued to accelerate through the year, and clocked in at 6.1% in June — the biggest jump since it came in at 6.9% in October 2018.
Medalla said the Monetary Board noted “favorable conditions” from the strong rebound in growth so far in 2022, suggesting that the local economy can still accommodate further tightening.
The Philippine economy grew by 8.3% in the first quarter, up from the 7.8% in the fourth quarter of 2021 and the -3.8% in the same quarter last year.
“By taking urgent action, the Monetary Board aims to anchor inflation expectations further and temper mounting risks to the inflation outlook in particular,” Medalla said.
“Policy action is intended to help manage spillovers from other countries that could potentially disanchar inflationary expectations,” he added.
The latest projections of the central bank indicate that inflation could average 5.6% in the second half of 2022, and average 5.0% for the full year. This is higher than the government target range of 2.0$ to 4.0%.
Moving forward, Medalla said the BSP continues to urge timely non-monetary government interventions to address the impact of supply-side pressures.
“The BSP reassures the public of its unwavering commitment and readiness to take further necessary actions to stir inflation towards a target-consistent path over the medium term and keeping with its price stability mandate,” he said.—AOL/RSJ, GMA News