Bangko Sentral hikes key policy rates

Bangko Sentral ng Pilipinas (BSP). RYAN LEAGOGO/INQUIRER.net

Monetary authorities on Thursday jacked up key policy rates by 25 basis points, citing inflation risks due to rising prices of commodities.

The inflation targets for this year until 2016 were likewise raised due to imminent price shocks that could slow consumer spending, which is a major contributor to the country’s economic growth.

Following the Monetary Board’s meeting, Bangko Sentral ng Pilipinas (BSP) deputy governor and officer-in-charge Diwa C. Guinigundo told a press conference that the upward adjustment brought to 4 percent the overnight borrowing or reverse repurchase (RRP) facility, while the overnight lending or repurchase facility (RP) now stands at 6 percent.

The interest rates on special deposit accounts as well as term RRPs and RPs were also raised 25 basis points, Guinigundo said.

The reserve requirement ratios, however, were not adjusted.

“The Monetary Board’s decision is based on the assessment that the inflation target, particularly for 2015, remains at risk,” Guinigundo said.

The latest baseline inflation forecasts, which have come closer to the higher end of the target range of 3 plus/minus 1 percent for next year, were pointing to elevated inflation pressures, he said. “Inflation expectations are seen to be settling near the upper end of the inflation target range, particularly for 2015.”

According to Guinigundo, “the balance of risks to the inflation outlook continues to lean toward the upside,” citing potential food price increases due to tight local supply and also pending adjustments in utility rates. The looming power shortage was also seen to bring up prices, he said.

Inflation targets for the coming years were raised to 4.5 percent (from 4.33 percent previously) for 2014, 3.8 percent (from 3.7 percent) for 2015, and 3 percent (from 2.8 percent) for 2016.

“The Monetary Board deemed it necessary to respond with stronger policy action to rein in inflation expectations further and preempt potential second-round effects even as previous monetary responses continue to work their way through the economy,” Guinigundo said.

The last five meetings of the policy-making Monetary Board saw it move to keep settings more restrictive. Last April and May, banks were ordered to set aside more of their clients’ deposits as reserves. June and July saw increases in SDA and policy rates as the BSP moved to mop up more liquidity and keep inflation expectations “anchored.”