Philippines: Central Bank raises policy rate to rein in inflation expectations
March 24, 2011
At its meeting held on 24 March, the Central Bank raised the interest rate by 25 basis points to 4.25%. The move constituted the first change in interest rates since August 2009, when the policymakers cut rates to a record low of 4.00%. The decision was widely expected by the market and follows other Asian central banks who have already begun withdrawing monetary stimulus to combat rising inflation spurred by higher commodity prices. As both headline and core inflation increased in February, the Central Bank's pre-emptive move aims to anchor inflation expectations around the target rate of 4.0% (1% tolerance margin) set by the Bank for 2011. Regarding developments on the real side of the economy, policymakers reassured the market that the hike will not curb the impressive rate of economic growth driven by resilient domestic demand, which continues to be boosted by strong remittances from abroad. The Bank also made a comment on the global economic outlook, stating that it remains vigilant about the possible risks to global economic growth and inflation originating from the developments in the MENA region as well as from the recent earthquake in Japan. The next monetary policy meeting is due to be held on 5 May.