Monetary Board hikes policy rate by 25 basis points

At its meeting on monetary policy today, the Monetary Board decided to raise the interest rate on the BSP’s overnight reverse repurchase facility by 25 basis points to 2.5 percent, effective Friday, 24 June 2022. Accordingly, the interest rates on the overnight deposit and lending facilities were raised to 2.0 percent and 3.0 percent, respectively.

In deciding to raise the policy interest rate anew, the Monetary Board noted that upside risks continue to dominate the inflation outlook up to 2023, with pressures emanating from the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, as well as pending petitions for transport fare hikes due to elevated oil prices. Meanwhile, the impact of a weaker-than-expected global recovery and the possible reimposition of local COVID-19 restrictions amid an uptick in infections continue to be the main downside risks to the outlook.

The BSP’s latest baseline forecasts have shifted higher, with average inflation projected to breach the upper end of the 2-4 percent target range at 5.0 percent in 2022 and at 4.2 percent in 2023. However, average inflation is also seen to subsequently decline to 3.3 percent in 2024. At the same time, inflation expectations have continued to rise. While they remain within the target range for 2023-2024, elevated expectations highlight the risk of further second-round effects arising from sustained price pressures.

Given these considerations, the Monetary Board believes that a follow-through increase in the policy rate enables the BSP to withdraw its stimulus measures while safeguarding macroeconomic stability amid rising global commodity prices and strong external headwinds to domestic economic growth. The Monetary Board also reiterates its support for the carefully coordinated efforts of other government agencies as part of a whole-of-government approach in implementing non-monetary interventions to mitigate the impact of persistent supply-side factors on inflation.

In line with the ongoing normalization of its monetary policy settings, the BSP is prepared to take all necessary policy action to bring inflation toward a target-consistent path over the medium term and deliver on its primary mandate of price stability.