Philippine's central bank raises policy rate by 25 bps to 6.25%

24 Mar '23

2 min read

Pic: Shutterstock/ Pal Nikolaisen

The Monetary Board of the Philippine central bank (BSP) has decided to raise the interest rate on the BSP’s overnight reverse repurchase facility by 25 basis points to 6.25 per cent, effective March 24, 2023. Accordingly, the interest rates on the overnight deposit and lending facilities will be set to 5.75 per cent and 6.75 per cent, respectively.

The monetary board’s decision was based on the sum of new information and its assessment of the effects of past policy actions, which warranted a continuation of monetary tightening to anchor inflation expectations. With core inflation rising in February despite a modest decline in headline inflation, further monetary policy action was deemed necessary to address broadening price impulses emanating from robust domestic demand and lingering supply-side constraints, the Monetary Board said in a press release.

The latest baseline projections point to an elevated path over the near term. Average inflation is projected to settle above the upper end of the 2-4 per cent target range at 6.0 per cent in 2023 before returning to the target at 2.9 per cent in 2024. The inflation forecasts reflect the cumulative impact of the BSP’s policy rate adjustments and the slower growth outlook on both the domestic and external fronts. Moreover, inflation expectations have increased slightly for 2023, while those for 2024 and 2025 remain near the upper end of the target band.

The balance of risks to the inflation outlook for 2023 and 2024 also continue to tilt heavily towards the upside. The potential impact of higher transport fares, increasing electricity rates, as well as above-average wage adjustments in 2023 point to the broader-based nature of price pressures. On the downside, the impact of a weaker-than-expected global economic recovery continues to be the primary factor that could dampen inflation.

Given these considerations, the board decided that follow-through monetary action would help ease persistent price pressures from here and abroad as well as further realign inflation expectations with the target band over the policy horizon. Further policy tightening will also preserve the buffer against external spill-overs amid heightened uncertainty and volatility emanating from financial sector distress in advanced economies, the Monetary Board said.

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