Philippine central bank hikes key policy rate by 25 bps, likely to stay on hold in December

The Philippine central bank hiked its overnight reverse repurchase policy rate by 25 basis points to 4.75 percent today, consistent with consensus expectations. The central bank also hiked the overall interest rate corridor by a similar magnitude. The BSP underlined that a possible hike by the U.S. Fed in December was factored into the decision.

The Philippine central bank also hiked its inflation projection for this year by 10 basis points to 5.3 percent. Nevertheless, the inflation forecast for next year was lowered from earlier 4.3 percent to 3.5 percent. This apparently reflects the effect of non-monetary measures, such as the rice tarriffication bill and the suspension of the oil excise tax, noted ANZ in a research report.

The BSP noted that economic conditions continue to be generally favourable, which have permitted room for a hike in the policy rate to rein in inflation expectations and pre-empt second-round effects. They saw proactive policy action as helping to temper the risks to the inflation outlook, including those emanating from an uncertain external environment in the midst of tighter global liquidity conditions, and trade tensions among major economies.

We expected the central bank to hike the policy rate in December, therefore today’s decision to hike was pre-emptive in our view. Accordingly, we expect the BSP to remain on hold next month”, added ANZ.

If oil prices continue to be stable, the effective execution of supply-side measures by the government should give the central bank with room to keep rates on hold in 2019.