Philippine central bank raises interest rates again, raises inflation expectations

Philippine central bank raises interest rates again, raises inflation expectations

By Neil Jerome Morales and Enrico Dela Cruz

MANILA (Reuters) – The Philippines’ central bank raised benchmark interest rates by half a percentage point on Thursday and said it was ready to take further action as it raised its inflation forecasts for this year and next, and as the peso fell even higher. low record.

Bangko Sentral ng Pilipinas (BSP) raised its overnight reverse repo facility rate to 4.25%, as most economists in a Reuters poll expected. This is the fifth rate increase this year, bringing the total increase to 225 basis points.

The interest rates on overnight deposits and lending facilities rose to 3.75% and 4.75%, respectively.

BSP said it was ready to make adjustments as the situation evolves and said inflation would miss the target range for this year and next. She said she had not had any out-of-session meetings scheduled.

“The monetary board noted that price pressures continue to expand. The rise in core inflation indicates emerging demand-side pressures on inflation,” BSP said in a statement.

β€œGiven the heightened uncertainty and the predominance of upside risks in the inflation environment, the Monetary Council recognized the need for follow-up actions to solidify inflation expectations and prevent price pressures from becoming more entrenched.”

Gareth Leather, chief Asian economist at Capital Economics, said BSP is likely to raise interest rates by another 75 basis points this year.

β€œBut we believe the tightening cycle will come to an end before the end of 2022,” he said, noting that most other analysts expect the BSP to continue tightening policy in 2023.

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Earlier on Thursday, the Philippine peso fell to a record low against the rise of the US dollar, taking its losses to more than 12% this year, the worst performance among the currencies of the five major economies in Southeast Asia. It hasn’t changed much after the BSP announcement.

BSP said Thursday’s adjustment would help ease pressure on the peso, and said it was ready to participate in the forex market to reduce volatility but had no intention of targeting a specific exchange rate level.

The central bank’s move came on the heels of the US Federal Reserve’s massive interest rate hike of 75 basis points, which was announced hours ago.

BSP raised its average inflation forecast to 5.6% from 5.4% for 2022, still above its full-year target range of 2% to 4%, and said it expects inflation to start decelerating by the fourth quarter of this year.

The forecast for next year was raised to 4.1% from 4.0%. For 2024, average inflation was seen at 3.0%, lower than the previously expected 3.2%.

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