MANILA— The Philippine central bank raised its key policy rate PHCBIR=ECI by 75 basis points on Thursday, as previously flagged by its governor, to combat inflation and prevent the peso from declining further against the U.S. dollar.
Bangko Sentral ng Pilipinas Governor Felipe Medalla, who as early as Nov. 3 had said he would vote to hike rates by three-quarters of a point, told a media briefing an “aggressive monetary policy action” was needed to tame inflationary pressures.
The adjustment, the sixth this year, brought the rate on the central bank’s overnight reverse repurchase facility to 5.0%, the highest in nearly 14 years, and compares with the U.S. Federal Reserve’s 3.75%-4% policy rate.
Medalla has said a move that big was needed to match the Fed’s 75 bps rate increase early this month and keep the differential between U.S. and Philippine rates from narrowing sharply.
A shrinking rate gap has weakened the peso and raised the cost of fuel and other imported goods, driving inflation in the Philippines last month to its highest in nearly 14 years.
All 19 economists polled by Reuters had penciled in a 75 bps hike this month, and with the Fed expected to continue hiking rates, they have also raised their forecasts for the months ahead.
The median forecast indicates the Philippines’ policy rate will rise to 5.75% by the end of the first quarter next year, compared with a forecast of 5.0% in the previous poll in September.
—Reporting by Neil Jerome Morales and Enrico dela Cruz; Writing by Karen Lema; Editing by Edmund Klamann
