Philippine central bank raises interest rates to curb inflation

The Philippine central bank raised interest rates Thursday for the first time in more than three years, in a bid to curb inflation as rising fuel prices and food shortages push up living costs.

Robust economic growth and jobs in the first quarter gave the monetary authority room to continue “rolling back its pandemic-induced interventions”, said Benjamin Diokno, governor of the bank.

Reducing inflationary pressures was now the focus as rising global oil prices, the Ukraine conflict, and a domestic shortage of pork and fish strained household budgets.

“Average inflation is likely to breach the upper end of the 2-4% target range in 2022 at 4.6%, while the forecast for 2023 has edged closer to the upper end of the target band at 3.9%,” Diokno said.

The 25-basis-point increase comes after the central bank held rates at a historic low of 2% since November 2020. The last time it lifted rates was in November 2018.

The monetary authority’s overnight reverse repurchase facility rose to 2.25% effective Friday, while overnight deposit and lending facilities were raised to 1.75% and 2.75% respectively.

Diokno warned the central bank was “only starting the monetary policy tightening cycle”, suggesting more rate hikes were likely.

Thursday’s increase would help head off “second-round effects”, such as higher-than-expected increases in minimum wages in some regions, he said.

RCBC chief economist Michael Ricafort said stronger-than-expected economic growth of 8.3% in the first quarter and other data indicated “the economy could weather” more hikes.

Economic activity was boosted in the first three months of the year by the lifting of Covid-19 restrictions and the start of the election campaign season, which ignited consumer spending.

Ricafort said the supply of pork had been affected by African swine fever outbreaks while the fish shortage was caused by a ban on fishing in some waters.