AT its meeting on monetary policy yesterday, the Monetary Board decided to raise the interest rate on the Bangko Sentral ng Pilipinas’ overnight reverse repurchase (RRP) facility by 25 basis points to 3.50 percent. This takes effect today.
The interest rates on the overnight lending and deposit facilities were likewise raised.
In deciding to raise the BSP’s policy interest rate anew, the Monetary Board noted that inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action.
Although inflation expectations remain within the target range for 2019, elevated expectations for 2018 highlight the risk posed by sustained price pressures on future wage and price outcomes.
While latest baseline forecasts have shifted lower for 2018 to 2019, upside risks continue to dominate the inflation outlook, even as various measures of core inflation continue to rise.
Moreover, the impact of international oil and commodity price movements on overall inflation is expected to be stronger, given prevailing robust aggregate demand conditions.
Given these considerations, the Monetary Board believes that further policy action enables the BSP to reinforce its signal on safeguarding macroeconomic stability in an environment of rising commodity prices and ongoing normalization of monetary policy in advanced economies.
The Monetary Board likewise reiterated its support for carefully coordinated efforts with other government agencies in implementing non-monetary measures to mitigate the impact of supply-side factors on inflation.
The Monetary Board also emphasized the BSP’s continued vigilance against developments, including excessive peso volatility, that could affect the outlook for inflation. The BSP is prepared to take further policy action as needed to achieve its price and financial stability objectives. (PR)