NextGen Day

MANILA – Philippine monetary officials raised the Bangko Sentral ng Pilipinas (BSP) benchmark rates by 25 basis points on Thursday, citing improved domestic economic activity and predicting further acceleration of domestic inflation.

The central bank’s overnight reverse repurchase (RRP) rate will increase to 2.25 percent on May 20, 2022, after being reduced by a total of 200 basis points in 2020 to a record-low 2%.

The overnight deposit rate will increase to 1.75 percent, while the overnight lending rate will increase to 2.75 percent.

In a virtual briefing, BSP Governor Benjamin Diokno said that baseline inflation forecasts have shifted further to the upside due to the continued rise in oil prices, which has also resulted in second-round effects such as an increase in the minimum wage in the National Capital Region (NCR), among other things.

The Labor Department recently announced that starting in the first week of June 2022, the minimum wage in the NCR will be hiked by PHP33 to PHP570 for non-agricultural workers and PHP533 for agriculture workers.

The BSP now expects average inflation to be 4.6 percent this year, down from 4.3 percent in March. The projection for 2023 has been raised to 3.9 percent from 3.6 percent.

Because of forecast increases in oil prices, the hike in the minimum wage, the rise in Federal Reserve rates, and the slowdown in global economic output expansion, the rate of price rise is expected to peak at over 5% in the second half of the year.

In the second quarter of 2023, it is expected to slow to within the government’s target range of 2 to 4%.

“Given these concerns, the Monetary Board considers that raising the BSP’s policy interest rate at the appropriate moment will help halt future second-round impacts and temper the rise in inflation expectations,” Diokno said.

He also stated that the central bank’s policy-making Monetary Board (MB) favors non-monetary measures to mitigate the impact of persistent supply-side variables on inflation, notably food supplies and prices.

“Overall, continued inflationary pressures indicate the need for immediate monetary action to stabilize inflation expectations.” As the economy improves, the BSP will continue to phase out its extraordinary liquidity interventions and begin normalizing its monetary policy settings, he said, adding that future monetary policy choices will be data-driven.

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