MANILA (UPDATE) - The Bangko Sentral ng Pilipinas on Thursday hiked its benchmark interest rate by another 25 basis points to temper inflation.
BSP Governor Benjamin Diokno made the announcement in a virtual briefing, which would be his last before he moves to the Department of Finance.
The 25 bps hike brought the overnight reverse repurchase rate, used by banks to price loans, to 2.5 percent.
"In deciding to raise the policy interest rate anew, the Monetary Board noted that upside risks continue to dominate the inflation outlook up to 2023, with pressures emanating from the potential impact of higher global non-oil prices, the continued shortage in domestic fish supply, as well as pending petitions for transport fare hikes due to elevated oil prices," Diokno said.
The rate hike was in line with the expectations of some analysts who said the BSP needed to keep pace with other central banks, especially the US Federal Reserve, which has been aggressively tightening monetary policy in the face of rising inflation.
Inflation soared to 5.4 percent in May and is likely to remain elevated for the rest of the year, as the Ukraine war pushes up prices of crude oil and other commodities.
"In line with the ongoing normalization of its monetary policy settings, the BSP is prepared to take all necessary policy action to bring inflation toward a target-consistent path over the medium term and deliver on its primary mandate of price stability," Diokno said.
The BSP revised its inflation expectations upwards to 5 percent from 4.6 percent for 2022, and to 4.2 percent from 3.9 percent for 2023, BSP Deputy Governor Francisco Dakila said.
The revision is attributed to the continued rise in global oil and commodity prices and other factors such as the approved provisional jeepney fare hike, Dakila said.
Inflation could average 5.6 percent in the second half of the year and is also likely to remain above target until the first half of 2023, he added.
Dakila said the BSP's projected the average crude oil price to settle at $106.30 per barrel this year, $95.30 per barrel in 2023 and $84.10 in 2024.
Incoming BSP Governor and incumbent Monetary Board member Felipe Medalla said more adjustments will be made in the second half of the year and in 2023 "if needed."
Meanwhile, the current year-to-date peso average of P51.98 against the dollar remains within the Development and Budget Coordination Committee (DBCC) assumption of P51 to P53 for 2022.
The peso closed at P54.70 on Thursday.