The Bangko Sentral ng Pilipinas (BSP) hiked its policy interest rate by a quarter-point on Thursday, its first tightening move in more than two years, amid a war-driven inflation flare-up.
The decision of the BSP’s policy-making Monetary Board brought the key rate that guides bank lending costs to 4.5 percent.
‘The inflation outlook has deteriorated amid the ongoing conflict in the Middle East. Higher global oil and fertilizer prices have begun feeding through to domestic fuel and food prices. At the same time, core inflation has continued to rise, pointing to a broadening of underlying price pressures,’ the BSP said in a statement.
The move was correctly predicted by 10 out of 16 economists polled by the Inquirer last week.
Higher borrowing costs are intended to prompt households to rein in spending, easing demand-driven price pressures but also cooling economic activity.
However, the Philippines-the first country to declare a national energy emergency amid Middle East turmoil-is grappling with supply-driven inflation after the war in the Middle East disrupted global oil exports.
The central bank earlier acknowledged that such challenges are not best addressed through rate hikes, which could also delay the economy’s recovery from the fallout of the flood control scandal.
Despite the limits to monetary policy, analysts have said raising rates could help anchor inflation expectations.