MANILA, Oct. 26 (Xinhua) -- The Philippine central bank decided on Thursday to take off-cycle action to raise the bank's target reverse repurchase rate by 25 points to 6.50 percent and the interest rates on the overnight deposit and lending facilities to 6 percent and 7 percent, respectively.
"The Monetary Board recognized the need for this urgent monetary action to prevent supply-side price pressures from inducing additional second-round effects and further dislodging inflation expectations," Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona told a news conference.
Remolona said the latest baseline projections "point to an elevated inflation path over the policy horizon as upside risks continue to manifest."
Before Thursday's monetary policy action, he said the risk-adjusted forecast for 2024 growth was 4.7 percent from 4.3 percent previously. "This is well above the government's target range."
At the same time, Remolona said second-round effects have broadened, including transportation fare increases and minimum wage adjustments. "Inflation expectations have risen sharply, highlighting the risk of further second-round effects."
According to Remolona, the balance of risks to the inflation outlook still leans significantly toward the upside. Meanwhile, the effect of a weaker-than-expected global recovery, as well as government measures to mitigate the effects of El Nino weather conditions, could temper inflationary impulses.
On the output side, recent domestic indicators point to dissipating pent-up demand in the near term. Nevertheless, the Southeast Asian country's medium-term growth prospects remain largely intact.
"The Monetary Board is closely monitoring the impact of the increase in interest rates as these work their way through the economy," Remolona said, adding that the body also continues to support fiscal efforts to sustain growth through more rapid programmed spending, as well as non-monetary interventions to address persistent supply-side pressures on prices. ■
