BSP hikes rates by 50 bps, expects inflation to surpass 14-year high in December

The Bangko Sentral ng Pilipinas (BSP) on Thursday decided to hike key policy rates to reach levels last seen in 2008, with the growth of consumer prices expected to surpass 14-year highs in December.

BSP Governor Felipe Medalla said the Monetary Board (MB) decided to tighten rates by 50 basis points effective Friday, December 16 — the overnight reverse repurchase to 5.5%, the overnight deposit facility to 5.0%, and the overnight lending facility to 6.0%.

The latest move matched the recent policy moves of the United States Federal Reserve, with signals of more increases moving forward.

“The Monetary Board arrived at its decision after noting the further uptick in headline and the sharp rise in core inflation in November amid pent-up demand,” he told reporters in a briefing in Manila City.

The MB expects inflation to average 5.8% this year, unchanged from the previous projections made last month.

The peak is projected this December, after the higher-than-expected outturn in November when it came in at a 14-year high of 8.0%.

“Higher food prices caused by recent typhoons, and in addition, higher LPG prices and electricity rates are expected to contribute to upward price pressures for December,” Medalla said.

The Manila Electric Company (Meralco) announced higher electricity rates, while oil firms hiked the prices of LPG products for December.

For 2023, the Monetary Board expects inflation at 4.5%, higher than the 4.3% it recorded during the previous monetary policy meeting.

“The expected upside risks to inflation over the policy horizon stem mainly from elevated international food prices due to high fertilizer prices and supply chain constraints,” Medalla said.

“On the domestic front, trade restrictions, increased prices of fruits and vegetables due to weather disturbances, higher sugar prices, pending petitions for transport fare hikes, as well as potential wage adjustments in 2023 could push inflation upwards,” he added.

Moving forward, Medalla said any more 50-basis point rate hikes will be “unlikely,“ but said that it is still too early to determine a possible pause in tightening.

“The BSP remains steadfast in its commitment to its primary mandate of sustaining price and financial stability and stands ready to take all necessary action to bring inflation within the 2-4 percent government target band over the medium term,” he said. —NB, GMA Integrated News