BSP raises interest rate to address rising prices

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Metro Manila (CNN Philippines, May 10) — To temper rising commodity prices, the Bangko Sentral ng Pilipinas (BSP) raised interest rates for the first time in two years.

The Monetary Board, the BSP's policy-making body, announced it raised interest rates by 25 basis points to 3.25 percent from 3 percent after its meeting Thursday.

Interest rate had been pegged at 3 percent since June 2016. The last rate adjustment was in September 2014.

"Given these considerations, the Monetary Board believes that a timely increase in the BSP's policy interest rate will help arrest potential second-round effects by tempering the buildup in inflation expectations," the BSP said in a statement.

Inflation reached a five-year high in April, at 4.5 percent. This breached the BSP's target inflation rate of 2 to 4 percent for 2018.

READ: Commodity prices continue to rise in April

"While inflation momentum has started to slow down, inflation may still breach the inflation target range of 3.0 percent ±1.0 percentage point for 2018 due primarily to temporar supply-side factors," the BSP added.

The interest rate hike is expected to stabilize inflation in the long run. The BSP sees inflation reverting to within the target range in 2019.

Also on Thursday, the Philippine Statistics Authority and National Economic and Development Authority announced that the economy grew by 6.8 percent during the first quarter of 2018.

However, Socioeconomic Planning Secretary Ernesto Pernia added that had it not been for the inflation spike, last quarter's GDP could have fallen within the government's target of 7 to 8 percent.

READ: Price spikes dampen first quarter economic growth