MANILA (Reuters) -The Philippine central bank boosted its key interest rates by 75 basis points in a surprise move on Thursday and kept the door open for further tightening as it scrambled to curb growing inflationary pressure and rescue a weakening peso.
The tightening measure was implemented outside the regular policy-meeting cycle. It was the most forceful by the Bangko Sentral ng Pilipinas (BSP) since the central bank transitioned to an inflation-targetting method in 2002.
The hike in interest rates matched policy moves implemented by other central banks in Asia and internationally on Wednesday and Thursday. They included one in Singapore that was likewise an off-cycle migration.
In the Philippines, the rate on the important overnight reverse repurchase facility was hiked to 3.25 percent , BSP Governor Felipe Medalla said in a statement.
“In raising the policy interest rate afresh, the Monetary Board acknowledged that a considerable further tightening of monetary policy was required by indicators of sustained and expanding price pressures amid the ongoing normalisation of monetary policy settings,” Medalla stated.
The rates on the BSP’s overnight deposit and lending facilities were also lifted by 75 basis points, to 2.75 percent and 3.75 percent , respectively.
No such move was expected on Thursday because the BSP did not have a normal policy meeting planned until Aug. 18. The central bank hiked interest rates by 25 basis points in May and again in June.
Medalla said the BSP will still hold the Aug. 18 meeting, and policy choices will remain data-dependent.
Inflation rose to the highest level in nearly four years in June, and is widely projected to stay elevated, putting the full-year average outside the goal zone of 2 percent to 4 percent.
Then-Finance Secretary Benjamin Diokno said the economy remained solid and could thus handle Thursday’s interest rate rise. It will remain supported by the loosening of COVID-19 limits and structural reforms, he noted.
PESO RECOVERS
The Philippine peso, which had set a record low early this week versus the U.S. dollar, recovered some lost ground and was last up 0.3 percent.
The peso is the worst-performing currency in Southeast Asia this year as the greenback continues to rise on expectations for stronger Federal Reserve policy tightening.
The Fed is expected to ratchet up its tightening drive with a supersized 100 basis-point rate hike this month after a report showed inflation racing at four-decade highs.
The BSP’s move was aimed at strengthening or at least stabilising the peso exchange rate, said Michael Ricafort, an economist with Rizal Commercial Banking Corp in Manila.
A weak peso increases extra pressure on inflation, threatening to derail the recovery of the consumption-driven domestic economy.
“More rate hikes are still feasible, if needed, as a function of any subsequent Fed rate hikes to bring down excessive inflation,” Ricafort said.
Further tightening is possible.
Medalla said the BSP was ready “to take further required interventions to move inflation onto a target-consistent path over the medium term”.
The central banks of New Zealand and South Korea boosted interest rates by 50 basis points on Wednesday, when Canada stunned markets by going for 100 basis points.
Singapore’s Thursday decision was to re-centre the mid-point of an exchange-rate control band.
Malaysia’s central bank boosted its benchmark interest rate for the second straight meeting last week.
Indonesia’s central bank may raise interest rates in the current quarter to manage future pressure on core inflation, but any rise will not be aggressive, its governor said on Friday.
