Bangko Sentral hikes policy rate by 75 bps as inflation projections rise

The Bangko Sentral ng Pilipinas (BSP) hiked its policy rate by 0.75 percentage point on Thursday, matching the latest move by the United States Federal Reserve to help quell inflation in the country.

BSP Governor Felipe Medalla said that the Monetary Board decided to raise the interest rate on the central bank’s overnight reverse repurchase facility by 75 basis points (bps) to 5 percent, effective on Nov. 18.

Likewise, the interest rates on the overnight deposit and lending facilities were set to 4.5 percent and 5.5 percent, respectively.

“In deciding to raise the policy interest rate anew, the Monetary Board noted that core inflation has risen sharply in October, indicating stronger pass- through of elevated food and energy prices as well as demand-side impulses on inflation,” the central bank governor said.

Medalla said they also see annual inflation exceeding their previous expectation of 2 percent to 4 percent this year and the next, citing that they see it reaching 5.8 percent in 2022 and 4.3 percent in 2023.

Sought for comment, the country’s largest business organization—the Philippine Chamber of Commerce and Industry (PCCI)—told the Inquirer that the central bank’s measures seem to be having the desired effect of tempering inflation.

“Seemingly, with the peso strengthening, I think it’s a good sign that inflation is being tamed,” PCCI president George Barcelon said in a phone interview.

Still, the PCCI official said that they are hoping that this would be the final policy rate hike for this year.

Go Negosyo founder Joey Concepcion, who advocates for micro, small and medium enterprises (MSMEs), told the Inquirer that these entrepreneurs whose loan plans are affected will just have to weather the consequences of the rate hikes.

“This is in response to the rate increases in the US. We have inflation because of the Ukraine-Russia crisis and not because we have a service disruption in the local supply chain.” Concepcion said.

He added that most MSMEs borrow from thrift and rural banks under micro-financing programs that offer fixed interest rates, adding that these entrepreneurs who have locked-in rates will be unaffected.

“Most MSMEs pay higher rates, unless they are prime borrowers, like us. For MSMEs, the loan rates are in the double digits,” he said, specifying these can range from 2 percent to 3 percent a month.

Concepcion said he hoped that the business performance in the fourth quarter will carry MSMEs through these challenges, expressing optimism as well that overseas headwinds will subside next year.

A day earlier, two consumer rights groups—Alliance of Concerned Consumers in the Philippines and the Rights Action Philippines—expressed wariness about the expected rate hike, voicing concerns over how it would affect loan and credit card rates.