Another rate hike

PHILIPPINES - In Brief 20 Jun 2018 by Romeo Bernardo
Amidst tumbling financial markets, the Monetary Board (MB) decided today to raise its set of policy rates by 25bp, its second after last month's increase. The key overnight reverse repurchase rate now stands at 3.5%. 

The BSP said that while its latest baseline inflation forecasts have shifted lower, the MB's decision is based on elevated inflation expectations, risk of second round effects from ongoing price pressures, and the dominance of upside risks to the inflation outlook. 

But perhaps more than any of those, we think that its statement of "continued vigilance against developments, including excessive peso volatility" may offer the best explanation for the rate hike at this time. The peso continued to weaken today, closing at P53.48/$ from P53.44 Tuesday, P52.69 at end-May and P49.92 at end-2017. In part, this reflects capital outflows with the local main equity index falling about 6% over the past two weeks.

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