Philippines: Central Bank raises key policy rate again
September 11, 2014
At its 11 September monetary policy meeting, the Central Bank raised its Reverse Repurchase Rate by 25 basis points to 4.00%. This move represents the second consecutive rate hike. The Bank had kept the rate at 3.50% from October 2012 until July of this year. Conversely, the Central Bank decided to keep the reserve requirement ratio steady. The Bank also decided to raise the interest rates on its Special Deposit Accounts (SDA) facility to 2.50%. 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 increased the rates because it sees the inflation target at risk, particularly for next year, and it hopes that the higher rate will contribute to, “rein in inflation expectations further and preempt potential second-round effects.” According to the Bank, recent data show that inflation moved closer to the upper end of the target range and indicate, “elevated inflation pressures.” For 2015, the Bank expects inflation to stay close to the upper bound and sees that risks to the inflation outlook are leaning toward the upside as price pressures arise from possible increases in food prices and utility rates as well as from potential power shortages.
The Central Bank left the door open for future rate hikes in stating that, “the continued favorable prospects for domestic demand—as evidenced by the stronger GDP growth in the second quarter—allow some scope for a further adjustment in policy rates.” The next monetary policy meeting is scheduled for 23 October.