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Philippines Monetary Policy December 2018

Philippines: Central Bank pauses tightening cycle in December as inflationary pressures cool

The Monetary Board of the Central Bank of the Philippines (BSP) kept the overnight reverse repurchase facility (RRP) on hold at 4.75% at its 13 December monetary policy meeting. Likewise, the overnight deposit facility (ODF) and the overnight lending facility (OLF) rates were also left unchanged at 4.25% and 5.25%, respectively. The ODF establishes the floor, whereas the OLF establishes the ceiling of the interest rate corridor system. The decision came amid easing price pressures and was in line with analysts’ expectations.

The Bank put a halt to its aggressive tightening cycle that saw the RRP jacked up 175 basis points year-to-date. The BSP’s latest decision to stand pat was guided by recent easing in inflationary pressures, with headline inflation falling to 6.0% in November (October 6.7%). In particular, food price pressures have retracted on the back of non-monetary measures to bring down the cost of rice, while the decent in global oil prices should further mitigate inflation. Moreover, the peso has strengthened in recent weeks, which has also stabilized inflation expectations. As a result, the Bank now expects inflation to settle within the target range of 3.0% plus or minus 1.0 percentage point in 2019 and beyond.

The Bank turned dovish in its communiqué. The BSP warranted the current monetary policy stance as necessary to allow previous rate hikes to feed through, suggesting the Bank will now take a more data dependent approach. Moreover, the BSP now sees the inflation outlook for 2019 as relatively balanced, giving further reason to shift its stance. Nevertheless, the Bank emphasized that “it remains vigilant against developments that could affect the outlook for inflation and financial stability” and reiterated it would take action if required.

The next monetary policy meeting will be held on 7 February 2019.

Philippines Interest Rate Forecast

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