Philippines Monetary Policy


Central Bank holds rates again, increases reserve requirement

At its 8 May monetary policy meeting, the Central Bank left its Reverse Repurchase Rate unchanged at 3.50%, a decision that was widely expected by the market. The rate has been kept at this level since October 2012. The Bank also decided to keep interest rates stable on its Special Deposit Accounts (SDA) facility. SDA facilities are fixed-term deposit accounts with maturities of between one week and one month that the Central Bank offers to credit institutions and bank trust entities. Furthermore, the Central Bank increased the reserve requirement for banks by a further 1.0 percentage points, which followed a similar decision in the previous monetary policy meeting. The Central Bank explained its decision to keep rates stable: “latest baseline forecasts show that the future inflation path is likely to stay within the target ranges of 4±1 percent for 2014 and 3±1 percent for 2015.” At the same time, the Central Bank recognized that pending adjustments in transport and power rates, as well as possible increases in food prices, represent potential price pressures that make overshooting the inflation target range more likely than undershooting it. As the Monetary Board noted, its decision to increase the reserve requirement aims to reduce the financial risks that could be brought about by strong growth in domestic liquidity. Consensus Forecast panelists see the Reverse Repurchase rate at 3.92% in 2014. For 2015, panelists expect the Reverse Repurchase rate to rise to 4.32%.

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Philippines Monetary Policy Chart

Philippines Monetary Policy May 2014

Note: Reverse Repurchase Rate in %.
Source: Central Bank of the Philippines (BSP).

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