Filipino Monetary Response Escalated Amid Rising Inflation

August 9, 2018

A May central bank rate hike in May — the first hike of the overnight reverse repo rate since 2014 — was followed one month later by a second tightening. Both increases were 25 basis points in size, which these days is the most frequent incremental change favored by central bankers. But after meeting this month, the Board of Bangko Sentral ng Pilipinas deemed that a more forceful response was warranted and raised the reverse repo rate by a half percentage point to 4.0%, while also moving the overnight deposit and lending rates also 50 basis points higher to 3.5% and 4.5%.

The intent of this escalation, according to a released statement, is to ”┬árein 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.” Inflation rose a half-percentage point to 5.7% last month. Measures of expected inflation next year presently lie within the target corridor, and officials hope to keep it that way.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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