MANILA -- The Bangko Sentral ng Pilipinas' (BPS) key rates were hiked by another 50 basis points on Thursday, the second of similar rate increase so far this year after monetary authorities noted the broadening price pressures.
Effective on Sept. 23, the BSP's overnight reverse repurchase (RRP) rate will be 4.25 percent, the overnight lending rate, 4.75 percent; and the overnight deposit rate, 3.75 percent.
BSP's key rates have been hiked by a total of 225 basis points since last May.
BSP Deputy Governor Francisco Dakila Jr., reading the statement on the Monetary Board's (MB) decision during an online briefing, said the core inflation, which excludes volatile food and oil items, continues to rise which "indicates emerging demand-side pressures on inflation."
Dakila said second-round effects, or the resulting impact of higher inflation such as petitions for wage and fare hikes, "continue to manifest, with inflation expectations remaining elevated in September following the approved minimum wage and transport fare increases."
However, he said "inflation expectations continue to be broadly anchored over the medium term."
Aside from the increase in the BSP's key rates, the MB also hiked the central bank's average inflation forecasts for this and next year but reduced the 2024 forecast.
The latest average forecast for this year is at 5.6 percent from 5.4 percent previously, and 2023 is at 4.1 percent from 4 percent.
On the other hand, the 2024 forecast was cut from 3.2 percent to 3 percent.
Dakila traced these changes to increase in the global prices of non-oil commodities, the fare hike petitions, higher prices of food items, and higher prices of sugar.
These factors are countered by the expectations of weaker global economic output, he said.
"Given elevated uncertainty and the predominance of upside risks to the inflation environment, the Monetary Board recognized the need for follow-through action to anchor inflation expectations and prevent price pressures from becoming further entrenched," Dakila said.
He said the continued recovery of the domestic economy provides a cushion for the impact of these sustained jumps in the BSP's key rates "as demand has generally held firm owing to improved employment outturns and ample liquidity and credit."
"At the same time, the Monetary Board also continues to urge the national government to implement timely non-monetary interventions to mitigate the impact of persistent supply-side pressures on food and other commodity prices," he added.
Dakila said the possibility of inflation posting a higher rate in September remains, even with the deceleration in the rate of price increases last August from 6.4 percent to 6.3 percent, due to higher food prices, electricity rates and base effects.
He said the inflation path, based on latest data, is expected to decelerate in the last quarter of this year.
The latest adjustments in BSP's key rates are lower than the 75 basis points increase in the Federal Reserve's benchmark rates this week, both of which are widely expected by markets.
Asked if the latest hike in the BSP's key rate will help address the continued depreciation of the peso, which is said to have an inflationary impact down the line, Dakila said, "the intention is not to target a particular level of exchange rate."
"The priority is to bring inflation back to within the target band," he said, adding the latest BSP rate decision will help the central bank achieve its price stability objective. (PNA)