Rate hikes still possible, says BSP

The Bangko Sentral ng Pilipinas has hinted that another interest rate hike is still possible even if the economy grew slower than anticipated in the first quarter.

According to BSP Deputy Governor Diwa Guinigundo, significant inflationary pressures remain, while the slowdown in the economy is likely to be temporary.

“From a monetary perspective, we believe inflation remains a major concern and continued vigilance of monetary policy is more than warranted. We also believe that the pulled-down economic performance is transitory,” Guinigundo told reporters.

The BSP has already hiked its key policy rates twice this year, each by 25 basis points. The first was in March, and the second was earlier this month. These have brought the overnight borrowing and lending rates, which influence commercial interest rates, to 4.5 percent and 6.5 percent, respectively.

Higher interest rates are meant to make borrowing more expensive, thereby tempering demand-induced inflationary pressures. The BSP said that without the rate hikes, inflation could breach the 2011 target ceiling of 5 percent for this year because of pressures coming from rising global oil prices.

Higher interest rates, since they temper demand, tend to slow down growth.

The economy, measured in terms of gross domestic product, grew by 4.9 percent in the first quarter, the National Statistical Coordination Board reported Monday.