Rising interest rates – Manila Standard

Recently, the world’s central banks have been increasing their interest rates one after another. It is their answer to stopping runaway inflation, which will ultimately reduce consumers’ purchasing power and stunt economic growth – or worse, lead to recession.

The US Federal Reserve just raised its borrowing costs by half a point, the largest since 2000 and above the normal increase of a quarter point. The US central bank aims to reduce the country’s inflation rate, which hit 8.5% in March this year, the fastest pace since 1981.

Several factors are contributing to rising inflation in the United States and the rest of the world. A reopened economy pushed consumers to spend faster than at the height of the pandemic, when there was little shopping activity. The Russian invasion of Ukraine pushed world oil prices above $100 a barrel and restricted the supply of wheat and corn, two main export commodities for the warring nations.

Strict containment in major Chinese cities is contributing to rising prices. China’s no-COVID policy has shut down its industrial factories, leading to the disruption of the global supply link.

Other products are also in short supply. The Indian powerhouse announced a surprise rate hike before the US Fed, also due to higher inflation caused by the war in Ukraine. Soaring crude prices and now edible oil shortages in Europe caused by the war in Ukraine are driving up inflation and food prices in India. Indonesia made the supply problem worse when the main producer ordered a complete ban on palm oil exports last week.

Interest rates in the Philippines will soon follow the path of the US Fed and other central banks. In addition to curbing spending by encouraging consumers to save, higher interest rates will make the US dollar more attractive. Capital flight can ensue if the Philippine peso offers lower yields than the greenback.

The inflation rate in the Philippines, meanwhile, is similarly rising, climbing to 4.9% in April from 4% in March. Inflation in the Philippines is not as bad as that of 8.5% in the United States and nearly 7% in India. But rising food, transport and utility prices will soon prompt the Bangko Sentral ng Pilipinas to bring the inflation rate under control through higher interest rates. Allowing the inflation rate to skyrocket any longer will only erode the value of hard-earned money.

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