Philippines Monetary Policy


Philippines: Central Bank stays pat on interest rates

June 16, 2011

At its meeting on 16 June, the Central Bank left interest rates unchanged at 4.50%. The move constituted a pause in the tightening cycle after policymakers had withdrawn monetary stimulus at their previous meetings in March and May by raising rates a cumulative 50 basis points. The decision contrasted market expectations, which had seen another 25 bps hike in June, as inflation continues to rise. In May, inflation rose to 4.5%, the fastest pace in a year. However, the Central Bank raised the reserve requirement on banks' deposits by 1.0 percentage point in order to constrain purchasing on credit and reduce excess liquidity in the economy. The Central Bank defended its stance by stressing that ?inflation expectations have shown some signs of leveling off? and stating that ?the two previous policy rate adjustments are starting to work their way through the system.? That said, the Bank claims to remain vigilant as inflationary risks are skewed to the upside and rate hikes cannot be excluded in the near future.


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