Photographer: Johannes Eisele/AFP via Getty Images

BSP Raises Interest Rates 50 Basis-Points, Matching U.S. Fed


December 20, 2022
Updated on December 20, 2022
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The Bangko Sentral ng Pilipinas (BSP) raised its key benchmark interest rate by 50 basis-points (0.5 percent) last week – moving in-line with analyst expectations and keeping pace with the U.S. Federal Reserve. The Monetary Board’s decision increased the overnight repurchase rate to 5.5 percent – the highest level seen since interest rates were set at 6 percent in November 2008. Since May this year, the BSP has raised interest rates seven times, accounting for a cumulative 350 basis-points. The BSP was largely expected to keep pace with the U.S. Fed, which a day earlier had also decided to raise interest rates by 50 basis-points, bringing its own policy rate to 4.25-4.5 percent – a fifteen-year high.

The U.S. Fed’s latest hike marked the beginning of what most analysts expect to be a more gradual period of monetary tightening. Prior to last week’s 50 basis-point hike, the US Fed had implemented four consecutive 75 basis-point hikes – dubbed “jumbo rate hikes,” by pundits. In an effort to maintain an acceptable rate differential, the BSP implemented its own “jumbo” 75 basis-point hikes in July and November. The BSP has been less aggressive than the U.S. Fed in its monetary tightening, opting for smaller 25 or 50 basis-point increases. Officials from the U.S. Federal Open Market Committee (FOMC) also signaled that interest rates would continue to increase in 2023 towards an “expected terminal rate” of 5.1 percent. The FOMC further indicated that interest rate reductions would begin by 2024 at the soonest. Similarly, GSP Governor Felipe Medalla in a recent interview on Bloomberg TV, indicated that the BSP was likely to continue raising rates at its next two policy meetings (February and March 2023). Although, Mr. Medalla expects further interest rate hikes to be at the more gradual 25 to 50 basis-point range, and also stated that there is now “less urgency” to match the US Fed.

Inflation has averaged 5.6 percent through the first eleven months of 2022, with November’s 8 percent reading marking a 14-year high. The BSP expects inflation may “may further go up in December,” but is expected to peak there. The BSP maintained its inflation forecast for 2022 at 5.8 percent, but increased its inflation prediction for 2023 to 4.5 percent (from 4.3 percent). On the other hand, the BSP lowered its 2024 inflation forecast to 2.8 percent (from 3.1 percent), noting “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 BSP noted that Medalla upside risks to inflation were predominantly higher global food prices due to higher fertilizer prices and supply chain disruptions. Additionally, the impact of slower global growth, particularly in advanced economies, posed further downside risks.


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