MONETARY authorities on Thursday raised key interest rates by 50 basis points (bps), acknowledging that inflation remained a threat to growth.
The adjustment — the fourth so far for 2022 — brought the Bangko Sentral ng Pilipinas' (BSP) overnight reverse repurchase, overnight deposit and overnight lending rates to 3.75 percent, 3.25 percent and 4.25 percent, respectively.
It was in line with most analysts' expectations and followed quarter-point increases in May and June and a shock off-cycle, or outside the policy meeting schedule, 75-bps hike last month.
"The inflation target remains at risk over the policy horizon owing to broadening price pressures. Elevated inflation expectations likewise highlight the risk of further second-round effects," BSP Governor Felipe Medalla said in an online briefing.
Inflation accelerated to 6.4 percent in July, well above the central bank's 2- to 4-percent target and bringing the year-to-date average to 4.7 percent. This prompted the BSP's policymaking Monetary Board on Thursday to again raise its 2022 forecast, to 5.4 percent from 5 percent.
delivered to your inbox
The estimates for 2023 and 2024, meanwhile, were trimmed to 4 percent and 3.2 percent, from 4.2 percent and 3.3 percent.
"Upside risks also continue to dominate the inflation outlook up to 2023 due to the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, the sharp increase in the price of sugar, as well as pending petitions for transport fare increases," Medalla said.
"Meanwhile, the impact of a weaker-than-expected global economic recovery, as well as the resurgence of local Covid-19 infections, continue to be the main downside risks to the outlook," he added.
Bank of the Philippine Islands lead economist Jun Neri said another off-cycle adjustment could not be ruled out if the US Federal Reserve delivered an "aggressive" hike during its September policy meeting.
The 50-bps adjustment, he said, was needed as the peso, currently "the weakest in [the] Asean-5," would have fallen anew had the hike been lower. July's 75-bps hike had helped lift the currency from a record P56:$1 level hit earlier that month.
Medalla said the Monetary Board "continues to urge timely non-monetary government interventions to mitigate the impact of persistent supply side pressures on commodity prices."
The BSP, meanwhile, remained committed to "take all necessary actions to steer inflation toward a target-consistent path over the medium term in keeping with its price and financial stability mandates," he added.