Filipino Monetary Board Hikes Policy Rates Anew by 25 Basis Points

September 11, 2014

At Bangko Sentral ng Pilipinas, the key overnight borrowing and lending rates were raised for the second time since late July by 25 basis points to 4.0% and 6.0%.  The Special Deposit Account Rate was likewise increased as well, but reserve requirements were not changed.  Prior to the July 31 increase, the key overnight rates had been at record lows since the last of four cuts made in 2012, and the tightening in July was the first increase since May 2011. 

A statement by the Monetary Board stressed the needed further containment of inflationary pressure.

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.

Abundant economic growth of 6.4% between 2Q13 and 2Q14 is sufficient to enable the Filipino economy to tolerate this additional tightening of monetary policy.  Appropriate policy actions will be taken “as necessary” in the future, the statement concludes.

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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