BSP eyes another rate hike to curb inflation

MANILA, Philippines—The Bangko Sentral ng Pilipinas said it would not hesitate to raise interest rates further if price pressures continued to be significant.

The monetary agency said it believed that the economy could absorb another rate increase as existing rates were still relatively low.

“We will be preemptive if we see signs of additional [inflationary] pressure. [In case of indications of faster-than-target inflation] the BSP will undertake appropriate monetary action,” BSP Deputy Governor Diwa Guinigundo told reporters.

He said the central bank was carefully monitoring various factors affecting inflation—including excess liquidity—to determine whether there was a need for another rate increase in June.

Members of the BSP’s policymaking Monetary Board meets once every six weeks to discuss interest rates. The next meeting will be on June 16.

In the meeting last May 5, the Monetary Board decided to raise key policy rates by 25 basis points, citing significant inflationary pressures that could lead to the breaching of the official inflation target for the year if interest rates were kept at low levels.

With the rate increase, the BSP’s overnight borrowing and lending rates, which influence commercial interest rates, now stand at 4.5 and 6.5 percent, respectively.

The latest rate adjustment followed a similar increase implemented in March.

The BSP said that without the two consecutive rate increases, inflation for 2011 could average 5.6 percent this year. In the first four months of the year, the average stood at 4.2 percent.

For this year and next, the government has set its target inflation ceiling at 3-5 percent.

The BSP added that without the two consecutive rate hikes, inflation for next year could average 4.16 percent.

They said inflationary pressures were coming from rising global food and oil prices and increasing domestic demand.

Volatility of oil prices in the world market was largely blamed on the lingering unrest in the Middle East and North Africa, which are two major oil-producing regions.

Guinigundo said that since the latest increase in interest rates by the BSP, prices have generally remained stable although officials continued to monitor developments here and abroad.

He said favorable harvest of some agriculture products and the relatively stable peso have been helping temper inflation.