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Monetary Board raises policy interest rate, adjusts inflation forecast

Updated: Jun 15

In response to the rising headline inflation rate, the Monetary Board raised the interest rate on the Bangko Sentral ng Pilipinas's (BSP) overnight reverse repurchase facility by 50 basis points to 6%, effective Friday, Feb. 17, 2023.

Accordingly, the interest rates on the overnight deposit and lending facilities will be set to 5.5% and 6.5%, respectively.

This is the highest level since 2008, according to Bangko Sentral Governor Felipe M. Medalla.

The Monetary Board also adjusted its inflation forecast for 2023, following the higher-than-expected inflation outturn in January.

Average inflation is now projected to breach the upper end of the 2%-4% target range and settle at 6.1% in 2023, before returning to within target at 3.1% in 2024.

The country's headline inflation accelerated further to 8.7% in January 2023, the highest since November 2008. The Philippine Statistics Authority reported that the main contributors to the elevated inflation were housing, water, electricity, gas and other fuels as well as food and non-alcoholic beverages. Price indices of these consumer baskets have continued to increase.

Raising the key policy rate is expected to raise the banks' lending rates and eventually curb inflation.

Medalla said the continued increase in both headline and core inflation indicate broadening price pressures.

Inflation is forecast to remain elevated through 2024, with pressures emanating from the potential impact of global food market uncertainties, continued domestic shortages in key food items, additional transport fare hikes amid elevated oil prices, and the higher-than-expected wage adjustments in 2023.

The impact of a weaker-than-expected global economic recovery remains the primary downside risk to the inflation outlook. (MVI/Ventures Cebu)

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