BSP hikes rates for second straight month

The Philippine central bank raised interest rates on Thursday for the second time in two months, warning inflation would breach its target this year with rising commodity prices and fish shortages driving up costs.

The monetary authority hiked its key interest rate by another 25 basis points to 2.5 percent, effective Friday.

Governor Benjamin Diokno said the central bank was prepared to “take all necessary policy action” to bring down inflation over the medium term.

Overnight deposit and lending facilities were raised by the same amount to two percent and three percent respectively.

Analysts said further rate hikes were likely to be gradual as slower economic growth in the months ahead reduced price pressures.

The hike comes after inflation hit 5.4 percent last month, the highest level in more than three years as steep oil price hikes pushed up food prices and transport costs.

It is expected to reach 5.0 percent this year and 4.2 percent in 2023, exceeding the central bank’s target range of 2-4 percent.

Before May, the central bank had held rates at historic lows since November 2020 to prop up the economy decimated by the coronavirus pandemic.

Diokno said the second consecutive increase enabled policymakers to withdraw stimulus measures while safeguarding economic stability.

Some economists expect cost pressures to peak soon as they predict a drop in oil prices and slower growth in the Philippines after the May 9 elections put the brakes on government and business spending.

“The upshot is that the central bank is unlikely to embark on an aggressive tightening cycle,” said Gareth Leather, senior Asia economist at Capital Economics. (AFP)