The Monetary Board, the policy-making body of the Bangko Sentral ng Pilipinas, said it is ready to do what is needed to rein in inflation and bring it within the target range in the medium term.
The MB stance was contained in the highlights of the meeting of the board on the monetary policy stance released Friday.
“Looking ahead, the Monetary Board emphasized that it 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,” said the BSP.
The board raised the BSP’s policy interest rate by 25 basis points to 2.50 percent on June 23 and increased the interest rates on the overnight deposit facility to 2 percent and overnight lending facility to 3 percent. It was followed by a hefty 75-basis-point rate increase in a surprise move on July 14, which brought the overnight borrowing rate to 3.25 percent.
The interest rates on the overnight deposit and lending facilities were also raised to 2.75 percent and 3.75 percent, respectively. The July 14 rate hike was the third time this year.
The BSP said the decision of the Monetary Board was based on assessment that inflation was projected to breach the upper end of the 2 percent to 4 percent target range for 2022 at 5 percent and 2023 at 4.2 percent. Inflation is seen to subsequently soften to 3.3 percent in 2024.
It said the inflation projections further shifted higher since the May 2022 monetary policy meeting, indicating that elevated inflation pressures could persist over the policy horizon.
“The risks to the inflation outlook continue to lean towards the upside for both 2022 and 2023. Major upside risks in the near term include the potential impact of higher global non-oil prices, higher fish prices and additional jeepney fare hikes due to rising oil prices,” it said.
Meanwhile, the BSP said the impact of a weaker-than-expected global recovery and potential re-imposition of quarantine restrictions amid an uptick in infections were the downside risks to the outlook.
“In assessing the monetary policy stance, the Monetary Board also noted that persistent inflationary pressures from global factors along with limited spare capacity in the domestic economy could lead to mounting second round effects.
Nonetheless, inflation expectations have remained within the target range for 2023-2024,” it said.
BSP Governor Felipe Medalla said the favorable conditions arising from the strong rebound in the first-quarter growth suggested that the domestic economy could accommodate a further tightening of monetary policy settings.
“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,” Medalla said.
Inflation in June accelerated to a 43-month high of 6.1 percent from 3.7 percent a year ago, driven by higher prices of food, non-alcoholic beverages and transport fares, the Philippine Statistics Authority said.