BSP raises policy rate by 25 basis points

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rates as a measure to curb inflation. 

The policy-setting Monetary Board (MB) increased the target reverse repurchase (RRP) rate by 25 basis points (bps) to 6.50% coming from 6.25%, effective October 27.

“The Monetary Board recognized the need for this urgent monetary action to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations,” the MB said in a statement. 

The rate hike occurred outside the regular schedule of the MB's usual monetary policy meeting. The meeting is supposed to be on November 16. 

With the increase, the overnight deposit and lending facility interest rates will be adjusted to 6% and 7%, respectively.

“This urgent monetary action is to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations,” BSP Governor Eli Remolona said in a tweet.

“The MB deems it necessary to keep monetary policy settings tighter for longer until inflationary expectations are better anchored and a sustained downward trend in inflation becomes evident,” he added. 

BPI Chief Economist Jun Neri meanwhile said that this move by the MB can prevent the disparity between the Philippine Peso and the U.S. Dollar.  

“BSP-MB hikes the policy rate by 25 bps to 6.5% statement hinting the possibility of a follow-through hike on November 16 helps prevent a spike of USD-PHP to 60 over the coming holidays,” BPI Chief Economist Jun Neri said in a tweet. 

ING Chief Economist Nicholas Mapa also said that this move will ensure inflation expectations for 2024. 

However, he also said that the country might still feel the “pressure” in the supply side which might possibly lower the country’s GDP. 

“However, given that price pressures remain largely supply-side in nature, we expect inflation to stay elevated until supply-side remedies are implemented. Against this backdrop of higher rates and inflation, economic growth appears to be slowing and we believe the full impact of previous BSP tightening will be felt by early 2024,” he said. 

On October 25, National Economic and Development Authority Chief Arsenio Balisacan said that there is no need for the MB to have a monetary response for the “supply-driven inflation.”