Metro Manila (CNN Philippines, February 16) — The country’s central bank raised borrowing costs anew following a surprise January inflation, pushing the key policy rate to 6% — the highest level since August 2008.
The Monetary Board’s move to increase the policy rate by 50 basis points (bps), or half of a percentage point, follows the 50-bp hike in December.It also raised interest rates on overnight deposit and lending facilities to 5.5% and 6.5%, respectively.The new rates take effect Friday, Feb. 17.In deciding to raise the policy interest rate anew, the Monetary Board noted that the latest baseline inflation forecast path has shifted higher relative to the previous assessment,” Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla said.An upward adjustment in the policy interest rate would also prevent inflation expectations from drifting further away from the target band. The Monetary Board also believes that, with domestic growth exceeding expectations in 2022, monetary action can help to dampen potential demand-side pressures and second-round effects without unduly hindering the sustained momentum of economic growth,” Medalla added.Banks and lending companies shadow the BSP’s rates for their loan, credit card, and deposit interests.This means Filipinos would be forced to pay more on interest charges for their credit card, auto and house loans, and business capital, among others.Raising interest rates, as one of the government’s responses to surging inflation, is also seen to dampen demand for goods and services as consumers save more.During the briefing, officials said they expect commodity prices to remain elevated for the next months, revealing its revised inflation outlook for 2023 at 6.1% – breaching the upper end of the 2% to 4% target range.The inflation rate is seen returning within target by 2024.Last month, Filipino consumers still grappled with skyrocketing prices of goods and services, with earlier data showing the inflation rate shooting up to 8.7%, well above the BSP’s 7.5% to 8.3% forecast range for the month.It did surprise us. The actual inflation is outside of our range,” Medalla said.Asked if the Monetary Board would keep its aggressive stance given the BSP’s inflation forecast, Medalla said he sees no need to resort to a sharp increase in interest rates.
