Higher isn't always better
Up up and away (our money goes). (Photo: Rappler)
For the first time since 2018, the Philippine central bank raised interest rates on Thursday, May 19. This was done in order to catch up to the ever-so-annoying inflation rate that’s catching up to bite us all from behind. And to think, we were already doing so well spending our money.
The Bangko Sentral ng Pilipinas (BSP) removed the overnight reverse repurchase facility rate by 25 basis points (bps) to 2.25%. However, overnight deposit and lending facilities rates were raised by 25 bps to 1.75% and 2.75%, respectively.
BSP Governor Benjamin Diokno warns that there are still a few factors to consider that can cause inflation to shoot up even higher. One of which is the approved minimum wage hikes. On paper, that’s good news right? The increase is expected to help around a million minimum wage earners in Metro Manila. That’s going to yield P570 and P533 for workers in non-agricultural and agricultural sectors, respectively. Unfortunately, it’s still a bit too low considering that minimum wage increases have been requested for years already.
Higher wages, higher prices? Kinda ruins the point of wage increases, don’t you think? That’s economics for you.
“These developments strengthen the case for a withdrawal of monetary accommodation as inflationary pressures are likely to persist and disanchor inflation expectations,” Diokno said.
The BSP prefers to fight back against the bully that is inflation, which has already breached the target band of 2% to 4% in April at 4.9% year-on-year by the way, through direct non-monetary measures.
Examples would be increasing the fuel subsidy programs and further supporting the agricultural sector such as reducing tariff rates for products until the end of the year and providing targeted fertilizer vouchers to farmers.
Diokno reassures the public that any monetary policy changes will be done in due time and shouldn’t be rushed so as to “not disrupt economic recovery momentum.” Whatever it is, I hope it’s good since my economic recovery hasn’t seen much momentum recently.
