BSP hikes rates for 1st time since 2018

A vendor arranges vegetables at a public market in Manila. — PHILIPPINE STAR/ RUSSEL A. PALMA

THE Bangko Sentral ng Pilipinas (BSP) raised its key interest rate for the first time since 2018 to tame rising inflation.

Interest rates on the overnight deposit and lending facilities were also hiked by 25 bps to 1.75% and 2.75%, respectively.

“The Monetary Board believes that a timely increase in the BSP’s policy interest rate will help arrest further second-round effects and temper the buildup in inflation expectations,” BSP Governor Benjamin E. Diokno said at a media briefing.

“Persistent inflationary pressures point to the need for prompt monetary action to anchor inflation expectations.”

Inflation climbed to 4.9% in April, the highest in more than three years, as oil and commodity prices soared amid the Russia-Ukraine war and supply chain disruptions.

“The Monetary Board also observed the emergence of second-round effects, including the higher-than-expected adjustment in minimum wages in some regions. Inflation expectations have likewise risen, highlighting the risk posed by sustained pressures on future wage and price outcomes,” he said.

Mr. Diokno said the strong rebound in economic activity and jobs market in the first quarter “provide scope for the BSP to continue rolling back its pandemic-induced interventions.”

He said the National Government will fully settle on Friday the P300-billion zero-interest loan it secured from the BSP, ahead of the original maturity date on June 11.

The Monetary Board will also reset the BSP’s bond-buying window into a regular liquidity facility that will also ensure the sustainability of its balance sheet. Mr. Diokno said the BSP held around 40% of government bonds at the height of the pandemic but has been significantly reduced to around 2-3%.

BusinessWorld