MANILA, Feb. 16 (Xinhua) -- The Philippine central bank on Thursday decided to raise the interest rate on the overnight reverse repurchase facility by 50 basis points to 6 percent effective Friday to tame inflation.
The 6 percent rate is the highest since August 2008.
Bangko Sentral ng Pilipinas Governor Felipe Medalla said the Monetary Board also decided to raise the overnight deposit and lending rates to 5.5 percent and 6.5 percent, respectively.
"In deciding to raise the policy interest rate anew, the Monetary Board noted that the latest baseline inflation forecast path has shifted higher relative to the previous assessment," Medalla said in a press conference.
He said the average inflation is projected to breach the upper end of the 2 percent to 4 percent target range at 6.1 percent in 2023 before resuming to within the target of 3.1 percent in 2024.
"The forecasts were adjusted upwards following the higher-than-expected inflation outturn in January as well as the continued stronger rebound in domestic demand and gross domestic product growth in the fourth quarter of 2022," he said.
"Both headline and core inflation measures have also continued to increase, indicating a further broadening of price pressures, particularly in services," he added.
He said inflation expectations have likewise risen further, underscoring the need to preempt the emergence of further second-round effects.
"At the same time, the balance of risks to inflation now leans toward the upside for both 2023 and 2024, with pressures emanating from the potential impact of global food market uncertainties, continued domestic shortages in key food items, additional transport fare hikes amid elevated oil prices, and the higher-than-expected wage adjustments in 2023," he said.
Meanwhile, Medalla said the impact of a weaker-than-expected global economic recovery remains the primary downside risk to the inflation outlook.
"The Monetary Board also reiterates its encouragement and support for timely and more aggressive whole-of-government actions to mitigate the impact of persistent supply-side pressures on food prices, including positive trade measures and significant progress to boost productivity," he said.
Given these considerations, he said the Monetary Board "deems a strong follow-through monetary policy response as necessary to reduce the risk of a breach in the inflation target in 2024." ■