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BSP hikes rates again amid high inflation

By: - Reporter / @daxinq
/ 05:30 AM June 21, 2018

The Bangko Sentral ng Pilipinas on Wednesday raised interest rates for the second time in six weeks to help arrest rising prices of local goods and services that accelerated to a five-year high last month.

The increase—which brings the central bank’s key overnight rate to 3.5 percent—comes in the wake of the record high inflation rate for the first five months of the year, which authorities had originally said would normalize by 2019 without any monetary policy tightening.

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At the same time, BSP Governor Nestor Espenilla Jr. said regulators would not hesitate to tighten monetary policy further if its latest move proved to be insufficient in reining in upward price pressures.

“In deciding to raise the BSP’s policy rates anew, the Monetary Board noted that inflation expectations remained elevated for 2018 and that risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action,” he said during a press briefing.

Bankers and financial market watchers have been clamoring for the central bank to raise interest rates since early this year in anticipation of the price spikes that inevitably came due to high international crude oil and commodity prices, amplified by the tax increases of the Duterte administration that came into effect on Jan. 1.

The country’s inflation rate stood at 4.6 percent as of May —the highest in at least five years. The peso closed Wednesday’s trading session at P53.48 to $1—the lowest in 12 years.

The central bank chief said that, although inflation expectations remained within the target range for 2019, “elevated expectations” for this year highlighted the risk posed by sustained price pressures on future wage and price outcomes.

“Equally important, while latest baseline forecasts have shifted lower for 2018-2019, upside risks continue to dominate the inflation outlook, even as various measures of core inflation continue to rise,” he said.

The BSP also expects the impact of international oil and commodity price movements on overall inflation to be stronger given prevailing robust aggregate demand conditions.

“Given these considerations, the Monetary Board believes that further policy action enables the BSP to reinforce its signal on safeguarding macroeconomic stability in an environment of rising commodity prices and ongoing normalization of monetary policy in advanced economies,” Espenilla said, adding that the board supported carefully coordinated efforts with other government agencies in implementing non-monetary measures to mitigate the impact of supply side factors on inflation.

“The Monetary Board also emphasized the BSP’s continued vigilance against developments, including excessive peso volatility, that could affect the outlook for inflation,” the central bank chief said.

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TAGS: Bangko Sentral ng Pilipinas, BSP Governor Nestor Espenilla Jr., Inflation, Interest rates‎
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