Philippines Raises Interest Rate to 3.5%

The central bank of Philippines raised its key overnight reverse repurchase rate by 25bps to 3.5 percent on June 20th, 2018, in line with market expectations. It follows a similar 25bps hike in the previous meeting, saying inflation expectations remain elevated for 2018 and upside risks continue to dominate. The corresponding interest rates on the overnight lending and deposit facilities were also raised accordingly.
Bangko Sentral NG Pilipinas | Gabriela Costa | 6/20/2018 9:18:24 AM
In May, the inflation edged up to 4.6 percent from 4.5 percent, reaching the highest since November of 2011. The central bank expects average inflation at 4.5 percent in 2018 (4.6 percent in the previous estimate) and at 3.3 percent in 2019 (3.4 percent in the previous estimate).

Excerpts from the Statement by the Bangko Sentral NG Pilipina:

In deciding to raise the BSP’s policy interest rate anew, the Monetary Board noted that inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action. Although inflation expectations remain within the target range for 2019, elevated expectations for 2018 highlight the risk posed by sustained price pressures on future wage and price outcomes. Equally important, while latest baseline forecasts have shifted lower for 2018-2019, upside risks continue to dominate the inflation outlook, even as various measures of core inflation continue to rise. Moreover, the impact of international oil and commodity price movements on overall inflation is expected to be stronger given prevailing robust aggregate demand conditions.

Given these considerations, the Monetary Board believes that further policy action enables the BSP to reinforce its signal on safeguarding macroeconomic stability in an environment of rising commodity prices and ongoing normalization of monetary policy in advanced economies. The Monetary Board likewise reiterates its support for carefully coordinated efforts with other government agencies in implementing non-monetary measures to mitigate the impact of supply-side factors on inflation.

The Monetary Board also emphasized the BSP’s continued vigilance against developments, including excessive peso volatility, that could affect the outlook for inflation. The BSP is prepared to take further policy action as needed to achieve its price and financial stability objectives.

Philippines Raises Interest Rate to 3.5%