Philippine central bank hikes overnight reverse repurchase policy rate by 50 bps

The Philippine central bank met today for its monetary policy decision. The BSP hiked its overnight reverse repurchase policy rate by 50 basis points to 4.5 percent, consistent with consensus estimates. Accordingly, the overall interest rate corridor was also hiked by a similar magnitude.

The BSP also increased its inflation forecasts. The central bank revised the headline inflation for this year and next year to 5.2 percent and 4.3 percent, respectively. The BSP kept its 2020 inflation forecast unchanged at 3.2 percent.

Even if the baseline forecasts have been upwardly revised, the central bank also underlined that risks continued to be skewed to the upside. The BSP highlighted that the supply shocks from typhoon are expected to continue over the next few months. Headline inflation is likely to surpass 7 percent in the fourth quarter of 2018, noted ANZ in a research report.

According to the BSP, price pressures in the economy are widening and inflation expectations are elevated. The central bank also observed that domestic demand remained resilient even as past tightening works its way through the economy.

“The continued upside risks to inflation, especially the impact of the recent typhoon is likely to push up inflation. Accordingly, we continue to expect the BSP to raise its key policy rate by another 25bps to 4.75 percent in December. This will take the cumulative rate hikes in the current cycle to 175bps”, added ANZ.