Despite the persistent rise in inflation, the central bank of the Philippines increased its benchmark interest rate by a quarter of a percentage point. The instability in the global banking industry has raised concerns about the economic future.
The benchmark overnight lending rate for the Philippines will increase by 25 basis points to 6.25% from 6.75% as of Friday, the Bangko Sentral ng Pilipinas announced on Thursday. The Wall Street Journal questioned eight economists, and seven predicted that the central bank would raise policy rates by a quarter of a percentage point. Instead, an increase of 50 basis points was expected.
Although continued strong inflation has the central bank leaning towards tightening, some economists have suggested that with the crisis in the global banking industry, policymakers may favor softer rate hikes. In its last two policy meetings, the central bank of the Philippines raised policy rates by half a percentage point.
Consumer prices in the nation rose 8.6% in February from a year earlier, significantly more than the central bank’s 2% to 4% inflation target range. Its fourth-quarter gross domestic product increased 2.4% from the third quarter and 7.2% from a year earlier.
Central banks around the world rapidly raised rates after years of policy stimulus to contain skyrocketing inflation brought on by the recovery from the COVID-19 outbreak and the Russia-Ukraine war.
Since May, the central bank of the Philippines has been gradually raising its rate, having raised it for the first time in three and a half years from 2.00%.
The Federal Reserve approved a quarter-point rate hike on Wednesday, but turbulence in the banking sector may have an earlier impact than was thought two weeks ago.
Interest rates in the Philippines increased by 25 basis points
The increase brought the total rate hikes the central bank has implemented since May to 425 basis points. All but one of the 24 analysts polled by Reuters predicted the move.
The central bank lowered its inflation forecasts for this year and next. He reaffirmed that he was ready to take action if necessary to reduce the rate of increase in consumer prices to within his comfortable 2-4% range.
The central bank now anticipates inflation to average 6.0% in 2023 and 2.9% in 2024, down from its previous predictions of 6.1% and 3.1% after annual inflation fell slightly to 8, 6% in February.
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