BSP Increases Borrowing Rates to 3.75%

As part of its ongoing campaign to rein in rising commodity prices, the Bangko Sentral ng Pilipinas (BSP) increased borrowing costs on Thursday by 0.5% to 3.75%.

Following a 75 bps or three-quarters of a percentage point off-cycle increase by the Monetary Board in July, the key interest rate will increase by 50 bps as of Friday.

According to BSP Governor Felipe Medalla, the rates for overnight deposits and loans were also raised to 3.25% and 4.25%, respectively.

As a benchmark for their loan, credit card, and deposit rates, banks and lending organizations look to central bank rates. Higher rates will make borrowing more expensive, which will cause both businesses and consumers to spend less and save more.

Rates are typically raised by central banks to slow down the rate of rising prices. However, a stagnant economy also happens to have too little money moving around.

The BSP has revised its inflation forecast for 2022 to an average of 5.4%, which is higher than its previous 5% forecast and the target range of 2-4%.

The rate of increase in prices for goods and services, or inflation, accelerated to a new nearly four-year high of 6.4% in July, remaining above target.

The central bank anticipates slower rates over the next two years, though. In contrast to its earlier forecast of 3.3% for 2024, it expects inflation to drop from 4.2% to 4% in 2023 and 3.2% the following year.

Medalla favors easing import restrictions because food prices continue to be the main cause of inflation. He claimed that the National Economic and Development Authority is developing a plan that will let food processors import the necessary supply of sugar.

While it is impossible for policy tightening to avoid reducing economic growth, Medalla continued, “respectable growth is still possible” even if the BSP moves forward with more measures.

After expanding by 8.2% in the first quarter of 2022, the economy expanded by 7.4% in the second quarter. First-half growth was 7.8%, which was slightly higher than the economic team’s target range of 6.5-7.5%.

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