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Financial News: Philippine Central Bank Raises Rates By 25 Bps

Philippine Central Bank Raises Rates By 25 Bps

06/23/2022 - 04:27:00 (RTTNews)

(RTTNews) - The Philippine central bank hiked its key interest rates again by 25 basis points, as widely expected, and signaled further tightening as inflation is set to remain above the target in the near-term.

The Monetary Board the Bangko Sentral Ng Pilipinas decided to raise the key interest rate, which is the overnight reverse repurchase facility rate, by 25 basis points to 2.50 percent, effective June 24.

Accordingly, interest rates on the overnight deposit and lending facilities were raised to 2.0 percent and 3.0 percent, respectively.

This was the second consecutive rate hike after a quarter point increase in May, which was the first hike since 2018.

In May, consumer price inflation rose to 5.4 percent, the strongest since November 2018, from 4.9 percent in April.

The central bank today raised its inflation projections for 2022 and 2023. The bank projected average inflation to breach the upper end of the 2-4 percent target range at 5.0 percent in 2022, up from 4.6 percent projected earlier. Likewise, the forecast for 2023 was lifted to 4.2 percent from 3.9 percent. Average inflation is seen to subsequently decline to 3.3 percent in 2024.

"The Monetary Board believes that a follow-through increase in the policy rate enables the BSP to withdraw its stimulus measures while safeguarding macroeconomic stability amid rising global commodity prices and strong external headwinds to domestic economic growth," the bank said.

In line with the ongoing normalization of its monetary policy settings, the central bank said it is prepared to take all necessary policy action to bring inflation toward a target-consistent path over the medium term and deliver on its primary mandate of price stability.

With inflation set to peak soon and headwinds to the recovery mounting, the tightening cycle will be gradual, Capital Economics economist Gareth Leather said.

The economist said the previous forecast that the policy rate would end the year at 2.75 percent looks too dovish. It is likely that the rate would rise to 3.25 percent, but this is still less than is being priced in by financial markets, Leather noted.

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