BSP raises key rates by 25 basis pts

The Bangko Sentral ng Pilipinas (BSP) raised its headline interest rates by 25 basis points yesterday to combat inflation that is running at a nine-year high.

It said also that it was willing to take further action when necessary to control inflation.

Economists had been divided on whether the central bank would raise rates or keep them unchanged. On the one hand, inflation is the result of soaring oil and food prices not domestic demand, but on the other hand, inflation is so high it needs to be brought under control, economists say.

The rise takes the overnight borrowing rate to 5.25 percent and the overnight lending rate to 7.25 percent.

The bank said supply-driven pressures were starting to feed into demand and that inflation in 2008 was likely to reach seven- to nine-percent.

The National Statistics Office (NSO) earlier reported that the nationwide inflation rate jumped in May to a nine-year high of 9.6 percent.

The NSO said the rise was “primarily triggered by the continuing higher annual price increases in the heavily weighted food, beverages and tobacco index.”

“The rest of the commodity groups also posted higher inflation rates during the month,” it said in a statement.

The May inflation rate was the highest level recorded since inflation hit 10.5 percent in January 1999, the statement added.

The inflation rate in April hit 8.3 percent.

The April figure brought average inflation in 2008 to 6.9 percent, well above the government’s full-year target range of three to five percent.

The Philippines, one of the world’s largest rice importers, has been hit hard by a worldwide rise in the price of rice.

TheBSP said rates on its Special Deposit Accounts (SDAs) would increase by 25 basis points to match the increase in headline rates. — Des Ferriols