Philippines Hikes Key Rate by 50 Bps to 4%

The central bank of Philippines raised its key overnight reverse repurchase rate by 50 bps to 4 percent on August 9th, 2018, in line with market expectations. It follows two consecutive 25bps hikes earlier this year, 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 | 8/9/2018 9:00:04 AM
In July, the inflation jumped to 5.7 percent from 5.2 percent in the previous month, reaching the highest level since March of 2009. 

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 latest baseline forecasts have shifted higher over the policy horizon, indicating some risk of inflation exceeding the target in 2019. Upside risks also continue to dominate the inflation outlook, as the sustained increase in core inflation suggests broadening price pressures amid resilient aggregate demand conditions. Meanwhile, inflation expectations remain elevated, although staying within the target of 3.0 percent ± 1.0 percentage point for 2019.

For these reasons, the Monetary Board deemed stronger monetary action to be necessary to rein in inflation expectations and prevent sustained supply-side price pressures from driving further second-round effects, even as the previous monetary policy responses continue to work their way through the economy. The Monetary Board believed that the series of policy rate adjustments thus far in 2018 will help reduce further the risks to inflation, including those emanating from the ongoing normalization of monetary policy in advanced economies and its impact on the foreign exchange market, and bring inflation toward a target-consistent path over the medium term. Favorable conditions arising from sustained domestic growth also suggest that the economy can accommodate a further tightening of monetary policy settings.

The Monetary Board likewise reaffirmed its support for carefully coordinated efforts with other government agencies in implementing non-monetary measures to further mitigate the impact of supply-side factors on inflation. The BSP reiterates its strong commitment and readiness to take all necessary policy actions to address the threat of high inflation and deliver on its primary mandate of price stability. 

Philippines Hikes Key Rate by 50 Bps to 4%