Philippines: Central Bank expectedly raises key policy rate for the first time since 2012, holds rates on Special Deposit Accounts steady
July 31, 2014
At its 31 July monetary policy meeting, the Central Bank raised its Reverse Repurchase Rate by 25 basis points to 3.75%, a decision that was widely expected by the market. From October 2012 until the latest monetary policy meeting, the Bank had kept the rate at 3.50%. Conversely, the Central Bank decided to keep the reserve requirement ratio steady. Furthermore, the Bank decided to maintain the interest rates on its Special Deposit Accounts (SDA) facility at 2.25%. 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.
The Central Bank said that it raised the rate as, “a preemptive response to signs of inflation pressures and elevated inflation expectations,” and it expects that the rate hike will lower inflationary pressures and help anchor inflation expectations. In addition, the Bank noted that its decision also is a, “preemptive measure in the context of the eventual normalization of monetary policy in some advanced economies.” Regarding price developments, the Bank stated that according to recent projections, inflation moved closer to the upper bound of the target range and that price pressures from increasing food prices, volatile international oil prices and pending adjustments in power and transport prices tilt risks to the inflation outlook toward the upside.
The Central Bank left the door open for eventual further future rate hikes in stating that, “the continued favorable outlook for domestic demand allows some scope for a measured adjustment in policy rates without adversely affecting the country’s economic growth prospects.” The next monetary policy meeting is scheduled for 11 September.