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Monetary Board Hikes Policy Interest Rate by 25 Basis Points

05.10.2018

At its meeting on monetary policy today, the Monetary Board decided to increase the interest rate on the BSP’s overnight reverse repurchase (RRP) facility by 25 basis points to 3.25 percent. The interest rates on the overnight lending and deposit facilities were likewise raised accordingly.

In deciding to raise the policy interest rate, the Monetary Board noted that latest forecasts have further shifted higher, indicating that inflation pressures could become more broad-based over the policy horizon. While inflation momentum has started to slow down, inflation may still breach the inflation target range of 3.0 percent ± 1.0 percentage point for 2018 due primarily to temporary supply-side factors. Nevertheless, inflation is expected to return inside the target range in 2019. The Monetary Board assessed that the balance of risks to the inflation outlook continues to lean toward the upside, with price pressures emanating from possible adjustments in transport fares, utility rates, and wages.

Given these considerations, the Monetary Board believes that a timely increase in the BSP’s policy interest rate will help arrest potential second-round effects by tempering the buildup in inflation expectations. The Monetary Board observed that strong domestic demand allows some scope for a measured adjustment in the policy rate without adversely affecting the country’s economic growth momentum. In assessing the stance of monetary policy, the Monetary Board also emphasizes that it continues to closely monitor domestic macroeconomic conditions as well as the evolving global economic environment, including the potential impact of the ongoing normalization of monetary policy in some advanced economies.

Looking ahead, the BSP stands ready to undertake further policy action as necessary to ensure the achievement of its price and financial stability objectives.

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