Philippines Raises Interest Rate to 4%

Philippines’ central bank decided to raise its key policy rate for the second straight time by 25 bps to 4 percent, aiming to curb rising inflation. It is the highest rate in two years.
Bangko Sentral NG Pilipinas | Joana Taborda | 9/11/2014 11:44:07 AM
Statement by the Bangko Sentral NG Pilipinas:

The Monetary Board decided to increase the BSP's key policy rates by   25 basis points to 4.0 percent for the overnight borrowing or reverse repurchase (RRP) facility and 6.0 percent for the overnight lending or repurchase (RP) facility.  The interest rates on term RRPs, RPs, and special deposit accounts (SDA) were also raised accordingly. Meanwhile, the reserve requirement ratios were left unchanged.

The Monetary Board’s decision is based on the assessment that the inflation target, particularly for 2015, remains at risk. Latest baseline forecasts have shifted closer toward the higher end of the target range of 3±1 percent for 2015, indicating elevated inflation pressures. Moreover, inflation expectations are seen to be settling near the upper end of the inflation target range, particularly for 2015. At the same time, the balance of risks to the inflation outlook continues to lean toward the upside, with price pressures emanating from the possible further increases in food prices as a result of tight domestic supply conditions, as well as from pending petitions for adjustments in utility rates and potential power shortages.

Given these considerations, the Monetary Board deemed it necessary to respond with stronger policy action to rein in inflation expectations further and preempt potential second-round effects even as previous monetary responses continue to work their way through the economy. The Monetary Board believes that the continued favorable prospects for domestic demand—as evidenced by the stronger GDP growth in the second quarter—allow some scope for a further adjustment in policy rates.

Going forward, the BSP remains prepared to take appropriate policy actions as necessary to ensure the achievement of its price and financial stability objectives.

Philippines Raises Interest Rate to 4%