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Published on 5/10/2018 in the Prospect News Emerging Markets Daily.

Philippines ups interest rate to 3¼% as inflation forecasts shift higher

By Tali Rackner

Minneapolis, May 10 – The Bangko Sentral Ng Pilipinas decided to increase its overnight reverse repurchase facility rate by 25 basis points to 3¼% at a meeting of the bank’s monetary board on Thursday.

Overnight lending and deposit facility rates and reserve requirement ratios were also increased by 25 bps.

The board said in a statement that latest forecasts continue to shift 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% plus or minus 1 percentage point for 2018 due primarily to temporary supply-side factors.

Nevertheless, the bank said, inflation is expected to return inside the target range in 2019.

The balance of risks to the inflation outlook continues to lean toward the upside, with price pressures deriving from potential changes in transport fares, utility rates and wages, the board said.

Given these considerations, the board explained that it believes that a timely increase in the bank’s policy interest rate will help arrest potential second-round effects by tempering the buildup in inflation expectations.


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