BSP policy rate hike inevitable

Bangko Sentral Governor Nestor Espenilla Jr. announced to no one's surprise on Thursday that the Monetary Board has raised policy interest rates by 25 basis points -- the first upward adjustment of key rates since September 2014.

In a press briefing after a monetary policy meeting, Espenilla said the rate hike sets overnight reverse repurchase facility interest rate at 3.25 percent while overnight lending and deposit facilities at 2.75 percent, “basically moving the corridor”.

This move of the MB was reportedly expected, even anticipated by the market amid increasing inflation due to a confluence of factors. “In deciding to raise the policy interest rate, the Monetary Board noted that latest forecasts have further shifted higher, indicating inflation pressures could become more broad-based over the policy horizon,” the central bank chief stated.

“Our own expectation is that by acting right now, in our view, a timely manner, we will avoid the necessity of further stronger action down the road,” he added. He noted that this adjustment is expected to get inflation back on the target range of 2 to 4 percent.

Likewise, the central bank raised inflation forecast from 3.9 percent to 4.6 percent in 2018 and from 3 percent to 3.4 percent in 2019, BSP Deputy Governor Diwa Guinigundo said.

Guinigundo cited that increasing oil prices, upward adjustment of minimum wage, and excise tax on tobacco products are the Monetary Board’s reasons to raise inflation projection for 2018. “Crude oil has gone up versus the 2017 levels. And we expect that in June 2018, we will continue to see elevated readings of oil prices at about USD70 per barrel,” he said.

He also mentioned that there have been five regions where petitions for higher minimum wage have been filed, which include the National Capital Region as well as Regions 4-A, 6, 7, and 11. Just last month, a PHP16 minimum wage increase was approved in Region 4-A.

A PHP2.50-per-pack excise tax on tobacco products is expected beginning July this year.

Meantime, inflation is expected to ease by next year as the Monetary Board sees tempering in crude oil price from USD67.84 to PHP64.81 per barrel. “Looking ahead, the BSP stands ready to undertake further policy action as necessary to ensure the achievement of its price and financial stability objectives,” Espenilla said.