THE Philippine central bank raised interest rates for the second time in two months today, warning that inflation will breach its target this year with rising commodity prices and fish shortages driving up costs.

It hiked its key interest rate by another 25 basis points to 2.5%, effective tomorrow.

Governor Benjamin Diokno said the central bank is prepared to “take all necessary policy action” to bring down inflation over the medium term.

Overnight deposit and lending facilities are raised by the same amount to 2% and 3%, respectively.

Analysts said further rate hikes are likely to be gradual as slower economic growth in the months ahead reduces price pressures.

The hike comes after inflation hit 5.4% last month, the highest level in more than three years, as steep oil price hikes pushed up food prices and transport costs.

It is expected to reach 5% this year and 4.2% in 2023, exceeding the monetary authority’s target range of 2%-4%.

Before May, the central bank had held rates at historic lows since November 2020, to prop up the economy decimated by the Covid-19 pandemic.

Diokno said the second consecutive increase enables policymakers to withdraw stimulus measures while safeguarding economic stability.

Some economists expected cost pressures to peak soon as they predict a drop in oil prices and slower growth in the Philippines after the May 9 polls put the brakes on government and business spending.

“The upshot is that the central bank is unlikely to embark on an aggressive tightening cycle,” said Gareth Leather, senior Asia economist at Capital Economics. – AFP, June 23, 2022.