Philippine central bank hastens interest rate rise

The Philippine central bank raised its key interest rates by 75 basis points in a surprise move on Thursday and kept the door open for further tightening as it rushed to contain broadening inflationary pressure and rescue a faltering peso.

Implemented outside the regular policy-meeting cycle, the tightening move was the most aggressive by the Bangko Sentral ng Pilipinas (BSP) since the central bank shifted to an inflation-targetting approach in 2002.

The rise in interest rates accompanied policy shifts effected by other central banks in Asia and elsewhere on Wednesday and Thursday. They included one in Singapore that was also an off-cycle move.

In the Philippines, the rate on the key overnight reverse repurchase facility rose to 3.25 per cent, BSP Governor Felipe Medalla said in a statement.

“In raising the policy interest rate anew, the Monetary Board recognized that a significant further tightening of monetary policy was warranted by signs of sustained and broadening price pressures amid the ongoing normalization of monetary policy settings,” Medalla said.

The rates on the BSP’s overnight deposit and lending facilities were also raised by 75 basis points, to 2.75 per cent and 3.75 per cent, respectively.

No such move was expected on Thursday because the BSP did not have a regular policy meeting scheduled until Aug. 18. The central bank previously raised interest rates by 25 basis points in May and again in June.

Medalla said the BSP would still hold the Aug. 18 meeting, and policy moves remained data-dependent.

Inflation surged to the highest level in nearly four years in June, and is widely expected to remain elevated, pushing the full-year average beyond the target band of 2 per cent to 4 per cent.

Finance Secretary Benjamin Diokno said the economy remained robust and could thus absorb Thursday’s interest rate rise. It would remain supported by the easing of COVID-19 restrictions and structural reforms, he added.

The 6.5 per cent-7.5 per cent growth target for gross domestic product set for this year by the newly installed Marcos administration remains within reach, BSP Deputy Governor Francisco Dakila said in a media briefing.