Inflation pressures trigger interest rates hike

MANILA, Philippines - The central bank's Monetary Board raised key policy rates on Thursday in a bid to contain inflation pressures.

The Bangko Sentral ng Pilipinas's (BSP) policy rates increased by 25 basis points to 3.75 for the overnight borrowing or reverse repurchase facility and 5.75 percent for the overnight lending or repurchase facility. Meanwhile, the rate on the special deposit accounts and the reserve requirement ratios stayed the same.

"The Monetary Board’s decision is a preemptive response to signs of inflation pressures and elevated inflation expectations. Latest baseline forecasts indicate that the inflation target could be at risk, as the forecasts have shifted closer toward the higher end of the target range of 3±1 percent for 2015," BSP said.

The central bank added that price pressures from higher food prices, short-term volatility in international oil prices and pending petitions for adjustments in power rates and transport fares pose risks to the country's inflation target.

"Moreover, while inflation expectations remain within target, they are seen to be settling toward the upper end of the inflation target range, particularly for 2015. The Monetary Board also sees the increase in policy rates as a preemptive measure in the context of the eventual normalization of monetary policy in some advanced economies," BSP said.

The bank said the latest rate hike will temper inflation pressures and stop potential second-round effects by helping anchor inflation expectations.

"The Monetary Board noted that the continued favorable outlook for domestic demand allows some scope for a measured adjustment in policy rates without adversely affecting the country’s economic growth prospects," it added.