BSP Hikes Policy Rates As Inflation Accelerates

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BSP hikes its policy rates by 25 basis points amidst quickening inflation.

BSP — The Bangko Sentral ng Pilipinas raised its key policy rates by 25 basis points to 2.25% amidst quickening inflation.

The Bangko Sentral ng Pilipinas followed other central banks around the world which have also raised interest rates in an attempt to tame surging inflation as economies started to recover from pandemic-induced recessions.

BSP
Photo source: Philstar

On Thursday, the central bank decided to hike key policy rates, to mark the first rate hike in 3 years, with inflation risks tilted to the upside. The Monetary Board increased the key policy rates by 25 basis points effective Friday, May 20, 2022.

BSP Governor Benjamin Diokno said in a virtual briefing that in deciding to raise the policy interest rate, the Monetary Board noted that the latest baseline forecasts have further shifted higher since the previous monetary policy meeting in March.

The central bank now expects inflation to clock in at 4.6 percent, higher than the 4.3 percent it projected in March and above the target range of 2% to 4%. This is expected to slow down to within the target range next year, at 3.9% versus the earlier announced 3.3%.

banknotes
Photo source: ABS-CBN News

The BSP chief noted that upside pressures were linked to the potential impact of higher oil prices including on transport fares, along with the continued shortage in domestic fish and pork supply.

Downside risks include the potential impact of a weaker-than-expected global economic recovery as the geopolitical tensions between Ukraine and Russia, the threat of COVID-19 remains, and the tightening of global financial conditions.

READ ALSO: BSP On Duterte EO On Government Digital Payments

Given those considerations, Diokno said that the Monetary Board believes a timely increase in the central bank’s policy interest rate will “help arrest further second-round effects and temper the buildup in inflation expectations”.

Diokno added that the Monetary Board likewise reiterates its support for the sustained implementation of non-monetary interventions in order to “mitigate the impact of persistent supply-side factors on inflation”, particularly food prices and supply.

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