Philippines Monetary Policy June 2018


Philippines: Central Bank increases key rate for the second consecutive month

June 20, 2018

At its meeting held on 20 June, the Central Bank of the Philippines (BSP) decided to raise the Overnight Reverse Repurchase Facility (RRP) from 3.25% to 3.50%. The decision, which was expected by markets, represented the second interest rate hike since September 2014. Moreover, the Bank also hiked the Overnight Lending Facility (OLF) and the Overnight Deposit Facility (ODF) rates by 25 basis points each; they now stand at 4.00% and 3.00%, respectively. The ODF establishes the floor, whereas the OLF establishes the ceiling of the interest rate corridor system.

The latest Bank decision came against a backdrop of elevated inflation at home. Buoyant economic activity so far this year, a depreciating currency in the second quarter and higher prices for oil and commodities in international markets pushed inflation to a new multi-year high of 4.6% in May (April: 4.5%). According to the BSP, risks to the inflation outlook are tilted to the upside as the effect of higher price of commodities, coupled with strong economic growth at home, could push inflation even higher in 2018. The BSP stated that the latest policy rate decision aims to send a strong signal to markets of their commitment to ensuring macroeconomic stability and anchoring inflation.

In its communiqué, the Bank struck a hawkish tone and commented that it stands ready “to take further policy action”. This implies that further rate hikes to achieve its inflation objective and maintain stability in the domestic financial market cannot be ruled out.

The next monetary policy meeting will be held on 9 August.

Against this backdrop, FocusEconomics Consensus Forecast panelists expect that the Central Bank will raise the RRP this year, with an average forecast of 3.80% for the end of 2018 and 3.90% for the end of 2019.

Author: Jean-Philippe Pourcelot, Economist

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Philippines Monetary Policy Chart

Philippines Monetary Policy July 2018

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

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