Pernia defends hike in interest rates: It will increase value of peso, curtail inflation

File photo of Socioeconomic Planning Secretary Ernesto Pernia from NEDA Facebook page

Socioeconomic Planning Secretary Ernesto Pernia on Monday, June 25, defended the Bangko Sentral ng Pilipinas’ move to hike the interest rate on the BSP’s overnight reverse repurchase facility by 25 basis points to 3.25 percent, saying this was a sound decision to increase the value of the Philippine peso and curtail inflation.

“‘(Y)ong pag-raise ng interest rates kailangan ‘yan kasi we’re far behind na, we’re behind the curve. Ang U.S. Federal Reserve Board kasi has been increasing interest rates na kaya lumalakas ang (dollar). Kasi ang interest rates reflects the price of a currency, kung mataas ang interest rates, mataas ang price ng currency,” said Pernia, chief of the National Economic Development Authority (NEDA), during an interview with dzRH’s Cesar Chavez.

[The increase in interest rates is needed because we’re already far behind, we’re behind the curve. The U.S. Federeal Reserve Board has been increasing interest rates and that’s why the dollar has strengthened. The interest rate reflects the price of currency, if the interest rates are high, the price of the currency is also high.]

“So ‘yong dollar, mataas ang value, naiwanan ang peso, so nag-depreciate ang peso vis-a-vis the dollar. And then tinaasan ng Central Bank ang interest rates natin para maka-catch up tayo sa pagtaas ng interest rates sa U.S….and mag-strengthen ‘yong peso because because of (the) increase in interest rates sa atin,” the NEDA chief further explained

[The dollar has high value, and the peso has lagged behind, it depreciated vis-a-vis the dollar. And then the Central Bank increased our interest rates so we could catch up with the hike in the interest rates in the U.S….and for the peso to strengthen because of the increase in our interest rates.]

Pernia added that the increase in interest rates would also shield the economy from inflation, which rose to 4.6 percent last May, the highest level in the last five years.

“And that’s also panglaban sa inflation kasi when interest rates are higher that means less money are available for purchases. Kasi the more money there is in the economic system,  the more people will have money in their pockets to buy. It increases the demand, which  outpaces supply,” he said.




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