A First Rate Hike for the Philippines

March 24, 2011

Bangko Sentral ng Pilipinas implemented its first rate change since July 2009, lifting its overnight borrowing rate and overnight lending rate by 25 basis points each to 4.25% and 6.25%.  Declaring that the 3-5% inflation target for 2011-12 “could be at risk,” a released statement from the central bank’s Monetary Board called its action a “preemptive response to rein in inflation expectations.”  Food and oil price rises have lifted on-year CPI inflation to 4.3% versus 1.5% at the time of the last of six rate cuts between December 2008 and July 2009.  Those cuts totaled 200 basis points, began with two 50-bp reductions, and ended with four cuts of 25 basis points each.  The statement leaves a strong impression that today’s increase may not be the last, concluding

The Monetary Board will remain vigilant against emerging inflationary risks and possible second-round effects of commodity price pressures.  The Board stands ready to undertake further action as necessary to safeguard price stability.

Because of a more hawkish statement after the previous meeting six weeks earlier, the markets were prepared to expect a tightening today and therefore not surprised.  The Philippines becomes one of the last Asian economies to experience a central bank tightening.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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