Philippines Central Bank Raises Interest Rate by 50bps To Regulate Inflation

The Philippine central bank chose to deliver a big 50-basis-point rate hike on Thursday and hinted at more rate hikes at its next meetings in order to control inflation, which soared to a new 14-year high last month.

The Bangko Sentral ng Pilipinas (BSP) raised its benchmark interest rate by a half-point to 6.0 percent on Thursday, as expected by a slim majority of economists polled.

"An upward adjustment in the policy interest rate would also prevent inflation expectations from drifting further away from the target band," BSP Governor Felipe Medalla told a media briefing after the central bank's first rate-setting meeting this year.

He added that the Monetary Board believed a strong follow-through monetary policy response was required to reduce the risk of missing its inflation target of 2%-4.0% in 2024.

The central bank raised its average inflation forecasts for 2023 and 2024 to 6.1 percent from 4.5 percent and 3.2 percent from 2.8 percent, respectively, following last month's headline inflation of 8.7 percent, which exceeded expectations.

"It is unlikely that we will not increase the rate (at the) next meeting," Medalla said, adding it was difficult to rule out a "third" or "maybe a fourth" rate increase after Thursday's policy action.

Following the BSP's policy decision and signals, the peso rose 0.3% to 55.12 pesos to the US dollar at 0811 GMT. Philippine stocks fell 0.1%, reversing earlier gains.

The central bank raised interest rates by 50 basis points on Thursday, the eighth time since last year to cool hot inflation. It will meet again on March 23.

Despite further policy tightening, Medalla predicted that growth would remain strong this year due to pent-up demand. Manila is aiming for a 6%-7.6% growth rate in 2023, down from 7.6% last year.

Taking the cue from the BSP, Capital Economics said in a note it was now expecting two more 25-bps rate hikes this year and ruled out any rate cuts it had penciled in for later in 2023.