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Bangkok Post
Bangkok Post
Business

Philippines surprises with big rate hike to cool inflation

Fuel prices at a petrol station in Quezon City, Metro Manila, the Philippines, on Tuesday (Bloomberg photo)

The Philippine central bank unexpectedly raised its key interest rate by 75 basis points, after policy makers previously downplayed the need for large hikes to quell the fastest inflation in nearly four years.

Bangko Sentral ng Pilipinas raised its key interest rate to 3.25%, effective immediately, Governor Felipe Medalla said in a Facebook Live on Thursday. The bank was scheduled to review policy on Aug 18. 

The increase was “warranted” due to signs of sustained and broadening price pressures, according to Medalla, who had earlier said that policy makers were considering quarter- and half-point moves but none of them wanted a 75 basis-point hike. “By taking urgent action, the Monetary Board aims to anchor inflation expectations further and temper mounting risks to the inflation outlook.”

Monetary authorities worldwide, including Singapore, are rushing to tighten policy settings in an effort to stem price gains and protect their currencies. With inflation showing no signs of cooling, much larger hikes are being considered, with Atlanta Fed President Raphael Bostic hinting that a 100 basis-point move is also “in play.”

Latest data showed consumer prices in the Philippines rose 6.1%, the highest level since late 2018, while the peso is down nearly 9% so far this year. 

Officials previously opted to take a more gradual approach to rate hikes to protect economic recovery. But the peso matching its record-low against the dollar this week is a risk to inflation in a country that imports goods from fuel to rice.

Medalla said on Thursday favourable growth conditions so far this year “suggests that the domestic economy can accommodate a further tightening of monetary policy.”

“The BSP reassures the public of its unwavering commitment and readiness to take further necessary actions to steer inflation towards a target-consistent path over the medium term in keeping with its price stability mandate,” Medalla said.

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