Philippines’ central bank hikes policy interest rate by 25bps

SINGAPORE (ICIS)–The Philippines’ central bank hiked its policy interest rate on Thursday by 25 basis points (bps), following a rebound in economic activity and amid elevated inflationary pressures.

Effective 20 May, the interest rate for its overnight reverse repurchase facility will rise to 2.25%, while the rates for its overnight deposit lending facilities will increase to 1.75% and 2.75%, respectively, the Bangko Sentral ng Pilipinas (BSP) said in a statement.

The decision was taken amid expectations that “elevated inflation pressures could persist”, with the BSP raising its average inflation forecast this year to 4.6%, exceeding the high end of its 2.0-4.0% target range. For 2023, the inflation average forecast is 3.9%.

The Philippine economy posted a first-quarter annualized growth of 8.3%, thanks to strong consumption and improved manufacturing output following the easing of COVID-19 restrictions.

The data “suggested that the Philippine economic recovery was on solid footing”, while “headline inflation also surprised on the upside with all indications pointing to even faster inflation in the coming months,” said Nicholas Mapa, senior economist at research firm ING Economics.

“Elevated energy and food prices are likely to keep headline inflation above target for a time while a recent wage hike confirms that second-round effects have finally emerged,” Mapa said.

“Price pressures may also have emanated from the demand side, with red-hot household consumption helping to fan inflation further,” Mapa said.

Meanwhile, the BSP noted that the strong Q1 rebound in domestic economic activity and labor market conditions “provides scope for the BSP to continue rolling back its pandemic-induced interventions, consistent with its exit strategy from monetary accommodation.”

It expects repayment of remaining Philippine pesos (Ps) 300bn ($5.7bn) of the total Ps540bn owed by the national government on 20 May.

($1 = Ps52.40)

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