MANILA, Nov. 17 (Xinhua) -- The Philippines' central bank on Thursday decided to raise interest rate on the overnight reverse repurchase facility by 75 basis points to 5 percent, effective Friday, to curb inflation.
The Bangko Sentral ng Pilipinas (BSP) said the Monetary Board also decided to raise the overnight deposit and lending rates to 4.5 percent and 5.5 percent, respectively.
The BSP said its latest baseline forecasts "indicate a higher inflation path over the policy horizon, with average inflation breaching the upper end of the 2-4 percent target range between 2022 and 2023 at 5.8 percent and 4.3 percent, respectively."
The forecast for 2024 has also risen slightly to 3.1 percent.
In deciding to raise the policy rate anew, the BSP said the core inflation has risen sharply in October, "indicating a stronger pass-through of elevated food and energy prices as well as demand-side impulses on inflation."
"At the same time, the risks to the inflation outlook lean strongly toward the upside until 2023 while remaining broadly balanced in 2024. Upside risks are associated with elevated international food prices owing to higher fertilizer costs, trade restrictions, and adverse weather conditions," the BSP added.
On the domestic front, the BSP said the impact of weather disturbances on the prices of fruits and vegetables, supply disruptions in essential food commodities such as sugar and meat, and pending petitions for transport fare hikes could also exert upward pressures on inflation.
Meanwhile, the BSP said the impact of a weaker-than-expected global economic recovery continues to be the main downside risk to the outlook.
"Given the increased likelihood of further second-round effects, persistent inflationary pressures, and the predominance of upside risks to the inflation outlook, the Monetary Board recognized the need for aggressive monetary policy action to safeguard price stability," the BSP said.
With the economy's strong growth in the third quarter of 2022, the BSP said domestic demand is seen to hold firm owing to improved employment outturns, investment activity, and consumer spending.
On the other hand, the BSP said a sizeable adjustment in the policy interest rate will help insulate the economy from external headwinds and exchange rate fluctuations that could further entrench price pressures and potentially dislodge inflation expectations.
The Monetary Board is also reassured by the timely non-monetary government interventions to mitigate the impact of persistent supply-side pressures on commodity prices, including those aimed at alleviating supply shortages and strengthening farm productivity. ■