The Bangko Sentral ng Pilipinas (BSP) continued to tighten rates on Thursday, as consumer prices are still seen to climb higher than the government’s target range for the year.
BSP Governor Felipe Medalla said the Monetary Board decided to hike rates by 50 basis points effective Friday, August 19 — the overnight reverse repurchase facility to 3.75%, the overnight deposit facility to 3.25%, and and the overnight lending facility to 4.25%.
“The inflation target remains at risk over the policy horizon owing to broadening price pressures. Elevated inflation expectations likewise highlight the risk of further second-round effects,” Medalla said at a virtual briefing.
The central bank hiked its 2022 inflation outlook to 5.4% from the previously forecasted 5.0% while it downgraded its 2023 outlook to 4.0% from 4.2% and for 2024 to 3.2% from 3.3%.
“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,” Medalla said.
“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,” he added.
He also said that overall domestic demand conditions have “generally held firm” despite moderation in economic activity, given the employment outturns and “ample” liquidity and credit.
The Philippine unemployment rate was maintained at 6% in June, but there were more unemployed Filipinos during the month at 2.99 million versus 2.93 million in May.
Medalla earlier this week maintained a hawkish stance, hinting at the possibility of more rate hikes moving forward.
Medalla said the economic growth recorded in the first half of the year gives the central bank flexibility to act against inflation pressures, while allowing domestic demand to sustain momentum.
“Is the question is will growth remain respectable, the answer is yes… Will we meet the DBCC numbers? Maybe no, but it’s not certain that they will not be met,” he said.
He was referring to the target range of 6.5% to 7.5% set by the inter-agency Development Budget Coordination Committee (DBCC) for the full-year 2022 economic growth.
The Philippine economy grew by 7.8% in the first half of the year, after expanding by 7.4% in the second quarter and 8.2% in the first quarter.
Medalla said the central bank remains committed to bringing down the reserve requirement ratio (RRR) down to single-digit under his term.
This is line with earlier pronouncements of Medalla’s predecessor, now Finance Secretary Benjamin Diokno, and the late BSP Governor Nestor Espenilla Jr.
The reserve requirement is the amount of cash a bank must hold in its reserves against deposits made by customers in the Philippines.
“The Monetary Board also continues to urge timely non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices,” Medalla said.
“The BSP reassures the public of its commitment and readiness to take all necessary actions to steer inflation towards a target-consistent path over the medium term in keeping with its price and financial stability mandates,” he added. — RSJ/VBL, GMA News