Image: Reuters Berita 24 English - Thursday was the second month in a row that the Philippine central bank raised its benchmark rate. They ...
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| Image: Reuters |
Berita 24 English - Thursday was the second month in a row that the Philippine central bank raised its benchmark rate. They did this to slow down the country's red-hot inflation, but they chose a small 25-basis-point increase because they were afraid that more aggressive tightening could hurt growth.
The rate change came after a 25-bps increase in May, which was the first since 2018. It brought the overnight repurchase facility rate to 2.5 percent, which is what most economists who took part in a Reuters poll from June 13 to 20 expected to happen.
The Bangko Sentral ng Pilipinas (BSP) also raised the interest rates on overnight deposits and loans by 25 basis points, to 2% and 3%, respectively.
In a statement, BSP Governor Benjamin Diokno said, "The Monetary Board believes that a follow-through increase in the policy rate will allow the BSP to withdraw its stimulus measures while maintaining macroeconomic stability in the face of rising commodity prices around the world and strong external headwinds to domestic economic growth."
Reuters polled 22 economists, and 16 of them got the decision of the central bank right. The rest of the market had expected a 50 bps increase, in part because of the aggressive tightening by the U.S. central bank last week and what people thought it would do next.
After the announcement, Gareth Leather, a senior Asia economist at Capital Economics, said, "Growth looks like it will slow in the second half of the year because of high commodity prices and weaker external demand." So, he said, the central bank probably wouldn't tighten things up too quickly.
Like other central banks around the world, the Philippine central bank is under pressure to raise interest rates even more to bring down inflation, which hit a three-year high last month, and support the peso, which has become a new challenge for policymakers.
The closing gap between interest rates in the Philippines and the U.S. has hurt the peso. On Thursday, before the BSP policy briefing, the peso fell for the seventh day in a row.
Diokno, who will start a new job as the finance secretary on July 1, said that high commodity prices meant that there were still a lot of risks to the upside. Felipe Medalla, who is already on the board that makes decisions, will take Diokno's place.
The BSP raised its average inflation forecast for this year from 4.6 percent to 5 percent, which is much higher than the target range of 2 percent to 4 percent. Inflation is expected to average 4.2% in 2023, which is higher than the previous estimate of 3.9%, which was also outside the same target range.
President-elect Ferdinand Marcos said this week that he will be in charge of the Department of Agriculture when he takes office on June 30. This will be one of the most important tasks for his government.
Medalla has hinted that there could be a series of rate hikes this year that could last until 2023 in order to bring inflation back to the target level. However, he has also said that he would rather see rate hikes that aren't as harsh.
