Philippine Central Bank Lifts Rate By 50 Bps

(RTTNews) - The Philippine central bank tightened its policy again with a 50 basis point hike, citing further uptick in headline inflation and pent-up demand.

The Monetary Board of the Bangko Sentral ng Pilipinas decided to raise the benchmark overnight reverse repurchase facility rate to 5.50 percent from 5.0 percent.

Accordingly, the interest rates on the overnight deposit and lending facilities were adjusted to 5.0 percent and 6.0 percent, respectively.

With today's 50 bps hike, the interest rate has hit its highest in 14 years. The central bank has raised the benchmark rate by a cumulative 350 basis points in the current tightening cycle that began in May.

The policy board deemed it necessary to take aggressive monetary action to bring headline inflation back to within target as soon as possible.

"An adjustment in the policy interest rate will continue to provide a cushion against external spillovers amid tighter global financial conditions," BSP said.

In November, consumer price inflation surged to a 14-year high of 8.0 percent from 7.7 percent in October.

Average inflation is still projected to remain above the upper end of the target range both this year and next. Inflation is seen at 5.8 percent in 2022 and 4.5 percent in 2023.

However, for 2024, the bank said inflation will ease sharply owing to the further easing in oil prices, peso appreciation and the slightly slower economic growth partly due to the BSP's policy rate adjustments.

Capital Economics economist Gareth Leather said the central bank will hike interest rates again early next year, but with inflation likely to peak soon and growth slowing, the tightening cycle is nearing an end.

Some further weakness in the peso is likely over the coming few months as worries about the global outlook lead to a renewed decline in risk appetite, the economist noted. With the Fed's own tightening cycle nearing an end, further falls should be relatively small, and the peso is expected to appreciate against the greenback in the second half of next year.

"With inflation expected to stay high, we believe BSP will retain its hawkish stance going into 2023, taking its cue mainly from the Fed while also monitoring the path of inflation," ING economist Nicholas Mapa said.