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By Maricel E. Burgonio, Reporter
The Bangko Sentral ng Pilipinas (BSP) hiked its
interest rates by 25 basis points to prevent inflation from rising
further and hinted at further rate action this year to support price
stability.
BSP Gov. Amando M. Tetangco Jr. said BSP’s key
policy rates increased to 5.25 percent for overnight borrowing, or
reverse repurchase (RRP) facility, and 7.25 percent for overnight
lending, or repurchase (RP) facility.
The interest rates on term RRPs, RPs and special
deposit rates also increased. The BSP last increased its rates on
October 2005.
With the rate increase, the BSP raised its
inflation forecast to 7 percent to 9 percent this year and expected
to surpass its inflation target to 4 percent to 6 percent.
The BSP has set an inflation target of 3 percent
to 5 percent this year and 2.5 percent to 4.5 percent next year.
“There are already indications that supply
driven pressures are beginning to feed into demand,” Tetangco
said.
Tetangco said there is need to act promptly to
rein in inflationary expectations as inflation rate in May posted a
nine-year high of 9.6 percent, way beyond the range of BSP’s
inflation forecast for the month.
“Some early signs of second-round effects of
these shocks are beginning to become more evident,” Tetangco said.
The adjustment was driven by the recent labor
wage increase and transport fare hike, which emanates from higher
internal oil and commodity prices that bloat inflation further.
Since monetary policy affects economic variables
with a time lag, policy measures undertaken now will help address
risks to inflation in 2009, Tetangco said.
“The Monetary Board stands ready to undertake
further action as and when necessary in order to ensure the
achievement of BSP’s price stability objectives,” he said.
The regional wage board increased labor minimum
wage by P20 a day to P382 daily salary in the National Capital
Region.
Transport fare, however, increased 50 centavos
for public utility vehicles.
“[H]igh oil prices, transport rise and wage
rise . . . would lead to early signs of second round effect,” Diwa
Guinigundo, BSP deputy governor, said.
Meanwhile, recent business and consumer
confidence surveys also indicated an upward shift in inflation
expectations, coinciding with increased term spreads on government
securities and higher secondary market yields.
In addition, Tetangco said the buoyancy of
domestic demand suggests some room for a measured policy response.
“Favorable conditions arising from a
respectable and still solid domestic growth as well as a strong
external payments situation imply that the economy can withstand a
measured tightening,” he said.
In the first quarter, the country’s gross
domestic product grew 5.2 percent in the first quarter of the year.
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