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BSP hikes rates by 50 basis points as inflation expectations remain tilted to upside

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) on Thursday continued with the tightening policy, with inflation expectations tilted to the upside and expected to fall within target by the second half of 2023.

BSP Deputy Governor Francisco Dakila Jr. said the Monetary Board will hike rates by 50 basis points effective Friday, September 23 — the overnight reverse repurchase facility to 4.25%, the overnight deposit facility to 3.75%, and and the overnight lending facility to 4.75%.

“In deciding to raise the policy rate anew, the Monetary Board noted that price pressures continued to broaden,” he told reporters in a virtual briefing.

The latest hike comes after a policy tightening of 175 basis points so far this year —  50 basis points in August, 75 basis points in an off-schedule hike in July, and 25 basis points each in June and May.

The Monetary Board hiked its inflation outlook for this year and the next — to 5.6% this year from the 5.4% it expected in August; and to 4.1% from 4.0% for 2023.

This comes as the Land Transportation Franchising and Regulatory Board (LTFRB) earlier this month approved fare increases for traditional and modern jeepneys, buses, taxis, and transport network vehicle services (TNVS).

Dakila said the latest fare hikes contributed 0.1 percentage points to inflation expectations for 2022, and 0.2 percentage points for 2023.

“The approval of additional fare hikes has been one of the major risks to inflation we have identified in previous policy meetings and now we see that that risk has now materialized,” Dakila said.

Aside from the fare hikes, Dakila also cited the recent performance of the Philippine peso — which has continued to record all-time lows — as one of the reasons for the changes in inflation expectations.

“Moreover, second-round effects continue to manifest, with inflation remaining elevated in September following the approved minimum wage and transport fare increases,” he said.

“Nonetheless, inflation expectations continue to be broadly anchored over the medium term,” he added.

Dakila said a possible acceleration of inflation in September could be driven by food prices, the adjustments in electricity rates, and base effects.

The Manila Electric Co. (Meralco) hiked rates by 39.07 centavos per kilowatt-hour in September to P9.9365/kWh, after Inflation clocked in at 6.3% in August.

Moving forward, Dakila said inflation is expected to start decelerating in the fourth quarter of the year before falling to within the target range of 2% to 4% by the second half of 2023. — RSJ, GMA News