Philippines Monetary Policy


Central Bank continues to pursue tighter monetary policy

At its meeting on 5 May, the Central Bank raised interest rates by 25 basis points to 4.50%. The move constituted the second increase in interest rates since the policymakers began tightening at their previous meeting on 24 March. The decision was expected by the market and follows other central banks in the region, which are attempting to temper increasing inflationary pressures spurred by higher commodity and energy prices. In April, headline inflation increased to a 12-month high of 4.5%. The Central Bank attributed cost-push inflation, originating from higher oil prices, as the main source of risk to reaching its 2011 inflation target rate of 4.0% (1.0% tolerance margin). Furthermore, according to the Bank, the move aims to ?rein in inflation expectations further and contain second-round effects?. Regarding developments on the real side of the economy, policymakers stated that the economy is expected to grow above its potential, bolstered by high production levels and a pick-up in private investment, which continues to be boosted by strong remittances from abroad. The next monetary policy meeting is due to be held on 16 June.


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