The Philippine central bank (BSP) announced on Thursday that it is raising interest rates by 50 basis points (bps) on Friday "to further anchor inflation expectations and to safeguard the inflation target over the policy horizon."
"At its meeting on monetary policy on Thursday, the monetary board decided to raise the interest rate on the BSP's overnight reverse repurchase (RRP) facility by 50 basis points, bringing overnight rate to 4.5 percent, effective Friday, Sept. 28, 2018," BSP said in a statement.
The statement said that the interest rates on the overnight lending and deposit facilities were raised accordingly.
This is the fourth time this year that the BSP has raised interest rates, following increases in May, June and August.
"The Monetary Board recognized that a further tightening of monetary policy was warranted by persistent signs of sustained and broadening price pressures. Latest baseline forecasts have shifted higher for both 2018 and 2019, with risks to the outlook still leaning toward the upside," the statement read.
With supply-side forces expected to continue to drive inflation in the coming months, the BSP said inflation expectations have remained elevated amid indications of second-round effects.
Meanwhile, the BSP said domestic demand conditions have generally held firm, even as the previous monetary policy responses continue to work their way through the economy.
"The Monetary Board, therefore, decided to raise the BSP policy interest rate anew to further anchor inflation expectations and to safeguard the inflation target over the policy horizon," the statement added.
At the same time, the monetary board emphasized the need for timely and appropriate non-monetary measures that will further mitigate the impact of supply-side factors on inflation, including rice tariffication.
"The BSP reassures the public of its strong commitment to taking all necessary policy actions to address the threat of high inflation and deliver on its primary mandate of price stability," the statement said.
The BSP also announced that it hiked its inflation forecasts for 2018 and 2019. For 2018, the BSP sees inflation averaging at 5.2 percent from 4.9 percent. For 2019, the BSP sees inflation to settle at 4.3 percent, from 3.7 percent.
The BSP maintained its forecast for 2020 at 3.2 percent.
The Philippines' inflation hit 6.4 percent in August and is expected to hit another fresh high in September.
