Monetary Board increases policy rates by 25bp

PHILIPPINES - In Brief 19 May 2022 by Romeo Bernardo
Following rising domestic inflation and inflation expectations, firmer recovery in domestic demand and a more hawkish US Fed stance, the policy making body of the BSP decided today to raise its set of policy rates by 25bp. This will bring the overnight reverse repurchase rate (RRP), which has been at 2% since late 2020, to 2.25%. In its statement, the Monetary Board cited expectations that inflation pressures will persist over the policy horizon and the emergence of second round effects from recently approved wage hikes and possible transport fare adjustments. It now forecasts inflation to average 4.6% this year and 3.9% next year compared with its target of 2-4%, with the balance of risks tilted towards the upside. Given the BSP’s assessment above and its statement that it is now prepared to exit from monetary accommodation and to start rolling back pandemic-induced interventions, we expect more rate hikes ahead especially with the US Fed signaling more aggressive monetary policy tightening ahead. While we do not think that the BSP needs to follow the US Fed lockstep, we would not be surprised if the RRP rate ends the year at 3%.

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