Hike rates

Inflation pushed BSP to raise rates by 75 basis points – UOB

UOB Group Senior Economist Julia Goh and Economist Loke Siew Ting comment on BSP’s recent decision to unexpectedly hike rates by 75 basis points.

Key points to remember

“In a regular but unscheduled monetary policy meeting this morning (July 14), Bangko Sentral ng Pilipinas (BSP) raised its overnight repo rate (RRP) by 75 basis points to 3, 25%.Similarly, overnight deposit and lending rates were also raised to 2.75% and 3.75% respectively.It was a rare move with the biggest rate hike since October 2000, and followed two consecutive rate increases of 25 basis points each in May and June.

“BSP saw an urgent need to get ahead of the inflationary threat and stressed that this urgent policy action is intended to help manage spillovers from other countries that could potentially unanchor inflation expectations. He also believes that domestic economic conditions favorable so far this year may allow for a further tightening of monetary policy.

“We believe that the last big off-cycle rate hike will not yet mark the end of BSP’s monetary policy normalization. In fact, we see the central bank hinting at further interest rate hikes to come, depending on incoming data on domestic inflation and GDP as well as the rate decision of global and regional central banks. short term. Given that BSP accelerated its pace of rate hikes faster than expected for 2H22, we are now advancing our BSP rate hike projections for 1H23 to this year, bringing the RRP rate back to the pre-pandemic level of 4.00 % by the end of 2022.”