BSP Upbeat On Economy Despite Higher Interest Rates
The Bangko Sentral ng Pilipinas (BSP) is expected to raise interest rates some more following the pronouncements from BSP Gov. Felipe Medalla that the economy can absorb the projected rate increases.
Photo Insert: The surprise interest rate of 75 basis points was made effective on July 14.
The Financial District's sources said that Medalla telegraphed the projected rate hikes during a forum organized by the UP Economics graduates where Medalla asserted that the Philippine economy "is strong enough to accommodate the recent policy rate increase" that caught the business community by surprise.
Last month, Medalla announced a surprising 75 basis-point hike in its benchmark rate, ahead of the scheduled monetary policy-setting meeting set on Aug. 18 to tame rising inflation.
The surprise rate hike brought the overnight reverse repurchase rate, used by banks to price loans, to 3.25 percent from 2.5 percent in June. With the hike, interest rates on loans are seen to go up.
The next policy meeting of the MB, set for next Thursday is expected to raise rates anew to insulate the economy from the higher rates made by the US Federal Reserve Board which is also faced with runaway inflation spikes.
The surprise interest rate of 75 basis points was made effective on July 14.
Medalla said then " the Monetary Board decided to raise the interest rate on the BSP’s overnight reverse repurchase facility by 75 basis points to 3.25 percent "
So far, the BSP has raised interest rates by 125 basis points this year as the inflation rate continued to rise.
Inflation had risen to 6.1 percent in June, above the two to four percent target range of the BSP as oil and other commodity prices continued to increase with the Ukraine crisis. “By taking urgent action, the Monetary Board aims to anchor inflation expectations further and temper mounting risks to the inflation outlook in particular,” Medalla then said.
“In raising the policy interest rate anew, the Monetary Board recognized that a significant further tightening of monetary policy was warranted by signs of sustained and broadening price pressures amid the ongoing normalization of monetary policy settings,” said Medalla.
“The Monetary Board noted that favorable conditions arising from the strong rebound in growth thus far in the year suggest that the domestic economy can accommodate a further tightening of monetary policy settings,” he added.
The Philippine economy regained pre-pandemic levels, growing at 8.3 percent year-on-year in the first quarter of 2022.