MANILA (Reuters) – The space for maintaining the Philippine central bank’s accommodative monetary policy has narrowed and authorities stand ready to make adjustments, its governor said on Wednesday, in remarks a day ahead of the monetary authorities’ policy meeting.
The Bangko Sentral ng Pilipinas (BSP) is expected to raise the overnight reverse repurchase facility rate by 25 basis points to 2.25% on Thursday to curb rising inflationary pressures, according to most economists in a May 12-16 Reuters poll.
“Second-round effects are starting to manifest,” BSP Governor Benjamin Diokno told a media briefing, referring to the inflationary pressures that brought the annual headline figure to 4.9% in April, soaring above the 2%-4% target band this year.
A rate rise on Thursday will be the BSP’s first hike since 2018.
Diokno said the domestic economy’s faster than expected expansion in the first quarter, an annual pace of 8.3%, along with the downside risks from COVID-19 threats and slower global activity, “strengthen the case for a withdrawal of monetary policy accommodation”.
“Inflationary pressures now appear more likely to persist and threaten to disanchor inflation expectations,” he said.
Economists in the Reuters poll also expected the BSP to pick up the tightening pace, with a majority anticipating the benchmark rate to rise to 2.50% by end-September, while the rest predicted it to reach 2.75% or higher.
More interest rate rises are on the way, with rates reaching 3.00% by end-2022, the Reuters poll median showed, up from 2.50% predicted in the previous survey.
Diokno said any policy adjustment will be done “in a timely manner”.
(Reporting by Neil Jerome Morales and Enrico Dela Cruz; Editing by Martin Petty)
