At its meeting on monetary policy Thursday, the Monetary Board decided to raise the interest rate on the BSP’s overnight reverse repurchase facility by 50 basis points to 5.5 percent, effective December 16.

The interest rates on the overnight deposit and lending facilities will be set to 5 percent and 6 percent, respectively.

This is the highest policy rate since December 2008.

The BSP’s latest baseline forecasts show that average inflation is still projected to breach the upper end of the 2-4 percent target range for 2022 and 2023 at 5.8 percent and 4.5 percent, respectively.

However, the forecast for 2024 fell to 2.8 percent owing mainly to the further easing in oil prices, peso appreciation, and the slightly lower domestic growth outlook resulting in part from the BSP’s cumulative policy rate adjustments.

The Monetary Board arrived at its decision after noting the further uptick in headline and the sharp rise in core inflation in November amid pent-up demand.

Upside risks continue to dominate the inflation outlook up to 2023 while remaining broadly balanced in 2024. The expected upside risks to inflation over the policy horizon stem mainly from elevated international food prices due to high fertilizer prices and supply chain constraints.

On the domestic front, trade restrictions, increased prices of fruits and vegetables due to weather disturbances, higher sugar prices, pending petitions for transport fare hikes, as well as potential wage adjustments in 2023 could push inflation upwards.

Meanwhile, the impact of a weaker-than-expected global economic recovery continues to be the primary downside risk to the outlook.

Amid broad-based inflation pressures, persistent upside risks to inflation, and elevated inflation expectations, the Monetary Board deems it necessary to take aggressive monetary action to bring headline inflation back to within target as soon as possible.

At the same time, an adjustment in the policy interest rate will continue to provide a cushion against external spillovers amid tighter global financial conditions.

The BSP remains steadfast in its commitment to its primary mandate of sustaining price and financial stability and stands ready to take all necessary action to bring inflation to within the 2-4 percent government target band over the medium term. BSP