Thursday, September 11, 2014

Philippines raises rate 25 bps, sees further rises ahead

    The Philippine central bank raised its policy rate by 25 basis points to 4.0 percent to rein in inflationary expectations and said it believed the favorable prospects for domestic demand allowed it scope for a further adjustment in rates.
    Bangko Sentral ng Pilipinas (BSP), which has been tightening its policy stance since March but still maintained the benchmark overnight borrowing rate since October 2012, issued the following statement:

    "At its meeting today, 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."


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