BSP hikes benchmark interest rates by 75 bps
The Bangko Sentral ng Pilipinas (BSP) unexpectedly raised its benchmark interest rates by 75 basis points (bps) in an attempt to tame the fastest inflation in the country in nearly four years.
BSP Governor Felipe Medalla said the Monetary Board raised its key rate to 3.25%, which immediately brought back the rate to the March 2020 level. This latest move is the BSP’s biggest rate hike ever.
Rates on the overnight deposit and lending facilities were also hiked by 75 bps to 2.75% and 3.75%, respectively.
Medalla explained that raising the policy interest rate allows the Monetary Board to recognize 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.”
The BSP’s surprise move came ahead of its regular policy meeting scheduled on August 18 and follows two 25-bp rate hikes each in May and June. So far, the Monetary Board has raised benchmark interest rates by a total of 125 bps.
“By taking urgent action, the Monetary Board aims to anchor inflation expectations further and temper mounting risks to the inflation outlook. In particular, policy action is intended to help manage spillovers from other countries that could potentially disanchor inflation expectations,” stated Medalla.
