BSP raises policy rates by 25 basis points Thursday

(Updated 7:54 p.m.) The Bangko Sentral ng Pilipinas (BSP) on Thursday raised its policy rates by another 25 basis points as a way of managing inflation that accelerated to a one-year high of 4.5 percent in April. The central bank's policy-setting Monetary Board decided to raise the overnight borrowing rate to 4.50 percent from 4.25 percent and the overnight lending rate to 6.50 percent from 6.25 percent, BSP Governor Amando Tetangco Jr. said in a press conference. "International oil prices have remained elevated due to strong global demand as well as concerns about supply gaps. Global non-oil markets also continued to tighten," Tetangco said. The latest baseline inflation forecasts continue to suggest that the BSP’s inflation target of 3 percent to 5 percent for the year remains at risk as pressures from world crude prices continues to mount, he said. Inflation shot up to a one-year high of 4.5 percent in April from 4.3 percent in March, bringing the average inflation in the first four months of the year to 4.2 percent from 4.3 percent in the same period last year. Protecting the economy The BSP slashed its key policy rates by up to 2 percent between December 2008 and July 2009 to protect the local economy from the impact of the global financial crisis. It then kept the rates steady for 20 straight months from July 2009 to March this year. The rates have now risen by half a percent after two rounds of hikes that began last March. Projections showed that inflation this year would have risen to 5.6 percent had the Monetary Board not implemented the rate hikes, Deputy Governor Diwa Gunigundo said. He added that now the 5 percent inflation target is again achievable and the country’s economic growth will be unaffected. The Aquino administration’s economic managers have forecast the gross domestic product growing between 7 percent and 8 percent this year and next. Tetangco said the Monetary Board now expects the economy to grow as the manufacturing sector keeps its capacity utilization above 80 percent while bank lending for production activities continues to rise. Tetangco said the BSP will pay close attention to sustained foreign capital inflows to make sure they do not raise domestic liquidity, add to inflation pressures and undo the intended impact of the rate hikes. — ELR/VS, GMA News