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After monetary authorities noted pricing pressures stretching further into 2023, the Bangko Sentral ng Pilipinas (BSP) issued another 25 basis point rise for its benchmark rates on Thursday.

The BSP Governor Benjamin Diokno stated in a video briefing on Thursday that it is anticipated that the domestic rate of price increases will remain high for a while due to increasing global non-oil commodity prices, domestic fish supply limits, and petitions for transportation fare hikes.

According to him, these are anticipated to be offset by a weaker-than-expected projected global recovery and the potential reimposition of movement restrictions as coronavirus disease 2019 (Covid-19) cases rise.

Given these factors, the Monetary Board believes that a follow-through increase in the policy rate will allow the BSP to reduce its stimulus programs while maintaining macroeconomic stability in the face of rising global commodity prices and significant external headwinds to domestic economic growth.

Similar rate increases were made to the BSP’s benchmark rates in May and this week to address recent increases in the inflation rate while also taking into account the effects of the domestic economy’s ongoing recovery.

Therefore, as of June 24, 2022, the BSP’s overnight reverse repurchase (RRP), overnight deposit, and overnight lending rates are 2.5 percent, 2 percent, and 3 percent, respectively.

As part of a whole-of-government strategy, the MB, which Diokno heads, “reiterates its support for the carefully coordinated efforts of other government agencies in conducting non-monetary actions to offset the impact of persistent supply-side issues on inflation,” according to Diokno.

He continued, “In keeping with the ongoing normalization of its monetary policy settings, the BSP is prepared to take all necessary policy action to deliver on its primary mandate of price stability and bring inflation toward a target-consistent path over the medium term.

The latest average inflation prediction for this year has been increased from 4.6 percent last May to 5 percent, according to BSP Deputy Governor Francisco Dakila Jr. during the same conference.

The percentage has increased from 3.9 percent to 4.2 percent for 2023, and at 3.3 percent for 2024, it is inside the government’s target range of 2-4 percent.

Dakila attributed these revisions to the May 2022 inflation turn-out, which increased to 5.4 percent after already exceeding the government’s target range in the preceding month at 4.9 percent; expectations for further acceleration of the inflation rate for June 2022; and the approved provisional jeepney fare increases because of the ongoing increases in fuel prices.

According to him, the sustained rises in global commodity prices and their ripple effects on local products and services will cause inflation to average 5.6% in the second half of this year.

According to him, the inflation prediction is biased upward for 2022 and 2023 before levelling out in 2024.

According to the BSP, the average price of crude oil will be US$106.3 per barrel in 2022, US$95.30 per barrel in 2023, and US$84.10 per barrel in 2024.

These are higher than the earlier predictions, which put the price of a barrel at USD 100.04 for 2022 and USD 89.59 for 2023.

The barrier at which we can expect inflation to decelerate back to within target for that year will be attained, he said, “if Dubai crude oil prices where to decrease to USD90 per barrel in 2023 on average.”

With these considerations, according to Dakila, the MB’s policy rate decisions in the upcoming months will continue to be contingent on data, including as the trajectory of inflation and its effects on domestic GDP.

The solid recovery in domestic economic activity and the conditions on the labor market associated with this exit from monetary accommodation have already signaled the BSP’s desire to continue pulling back its pandemic-induced actions, he continued.

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