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“The Monetary Board recognized the need for this urgent monetary action to prevent supply-side price pressures from inducing additional second-round effects and from further dislodging inflation expectations,” BSP Governor Eli Remolona Jr. said on Thursday.The key policy rate affects the interest rate that banks charge to consumers – in other words, the interest that you’ll have to pay on your loans with the bank.
In the meantime, the “urgent monetary action” that the BSP took by raising rates is its way of signaling that it is trying to manage inflation expectations seriously. Inflation expectations simply refer to what consumers and analysts expect future inflation will be. Why? If the general expectation is that prices will still be high, then businesses might start raising prices now in anticipation of higher inflation next year, which only reinforces and causes inflation to go up.
Consumer loans – housing loans, personal loans, and auto loans – are generally priced based on the BSP’s key policy rate, meaning that consumers will be immediately faced with more expensive loans. “Monetary policy operates with a lag. As such, will be sort of preemptive, recognizing that the benefits will outweigh the costs to the economy,” Roces told Rappler.
“If I were on the Monetary Board, I would say no because we have been the most aggressive in our region in raising interest rates,” Balisacan told reporters on October 6.
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