Philippines Monetary Policy

Philippines

Philippines: Central Bank holds key policy rate, increases rates on Special Deposit Accounts

June 19, 2014

At its 19 June 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 Bank has kept the rate at this level since October 2012. Furthermore, the Central Bank also kept the reserve requirement ratio steady. Conversely, the Bank decided to raise the interest rates on its Special Deposit Accounts (SDA) facility from 2.00% to 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 explained its decision to keep key policy rates stable, stating that despite May’s rise in inflation, it still expects, “inflation […] to settle within the upper half of 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 power rates and possible increases in food prices from changing weather conditions represent potential price pressures that make overshooting the inflation target range more likely than coming in under it. As the Monetary Board stated, its decision to increase the interest rates on the SDA facility aimed to, “counter risks to price and financial stability that could emanate from ample liquidity, noting that a modest upward adjustment in interest rates would be prudent amid robust credit growth.”

Consensus Forecast panelists see the Reverse Repurchase rate at 3.90% in 2014. For 2015, panelists expect the Reverse Repurchase rate to rise to 4.29%.


Author: Teresa Kersting, Economist

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