BSP sets interest rate at 4%, adjusts inflation forecasts

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Metro Manila (CNN Philippines, August 9) — The Bangko Sentral ng Pilipinas (BSP) has again tightened monetary policy in response to rising prices.

Interest rates were hiked by 50 basis points to 4 percent in Thursday's meeting of the Monetary Board, the  BSP's policy-making arm.

"The Monetary Board deemed stronger monetary action to be necessary to rein in inflation expectations and prevent sustained supply-side price pressures from driving further second-round effects, even as previous monetary policy responses continue to work their way through the economy," BSP Governor Nestor Espenilla said in a media briefing.

The BSP has consistently tightened monetary policy by 25 basis points since May 2018 in response to rising inflation rates since January.

The last time the BSP raised interest rates by 50 basis points was more than a decade ago in July 2008 in the wake of the global financial crisis.

The BSP also revised its inflation forecast to fall at an average of 4.9 percent this year from June's previous forecast of 4.5 percent.

This will fail to hit the government target of 2 to 4 percent inflation.

BSP Deputy Governor Diwa Guinigundo cited four factors that affected their inflation forecast: increase in jeepney fares, water rate hikes for Maynilad and Manila Water customers, the increase in the excise tax in tobacco, and the higher price of oil in the global market.

Guinigundo added that transport fares, which includes jeepneys, accounts for 4.8 percent in the consumer price index (CPI), which is the basis for calculating inflation.

The BSP inflation forecast for 2019 will fall back to within the government target at 3.7 percent, though higher than its previous forecast of 3.3 percent.

"For 2019, the forecast is 3.7 from 3.3 percent, although from 4.9 to 3.7 percent there is a deceleration in inflation," Guinigundo said.

The BSP expects inflation to be tempered by lower non-oil import prices and negative base effects from June to August 2019 from supply shocks in oil, food and excise taxes.

Meanwhile, the BSP expects inflation to fall at an average of 3.2 percent in 2020.