Rate Hikes in The Philippines and Malaysia
May 5, 2011
Bangko Sentral Ng Pilipinas has implemented a second tightening of its monetary policy interest rates, following up on an initial move on March 24. The reverse repo rate for borrowing was lifted 25 basis points to 4.5%, and the repo lending rate was increased to 6.5% from 6.25%. During the recession, rates were cut by 200 basis points between December 2008 and July 2009, and the cyclically low levels had been maintained until late March of this year. Filipino inflation now shows a 12-month 4.5% rate of climb, up from 4.3% when the first rate hike was done and 1.5% at the time of the final rate cut. A statement today from monetary officials voices concern that “the 3-5 percent inflation target for 2011 remains at risk, mainly as a result of expected pressures from oil prices. International oil prices have remained elevated due to strong global demand as well as concerns about supply gaps. Global non-oil markets also continued to tighten.” Further restraint is hinted as well: “The Monetary Board remains prepared to take appropriate actions necessary to ensure the achievement of the BSP’s price stability objective.”
Bank Negara Malaysia boosted its key overnight rate by 25 basis points to 3.0%. Although such was the first tightening of 2011, Malaysia’s central bank had in fact led the Asian region with a 25-bp rate hike on March 4, 2010 followed by two more advances on May 3 and July 8 of last year. A tightening pause had then ensued because of more volatile world financial market conditions, the risk of moderating global demand, and a forecast that CPI inflation would remain moderate into 2011. Upward pressure on the ringgit also gave officials leeway until now to wait and see. Malaysian CPI inflation at the time of last year’s third rate increase to 2.75% had been at 1.6%, but it climbed subsequently to 2.8% on average last month and 3.0% on year in March. A statement posted today on the Malaysian Central Bank website explaining today’s action calls policy still accommodative and suggests that as in The Philippines more increases lie ahead for Malaysia, their timing to be determined by the evolution of growth and inflation trends.
Copyright Larry Greenberg 2011. All rights reserved. No secondary distribution without express permission.
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