​Another “strong” 50bp rate hike

PHILIPPINES - In Brief 27 Sep 2018 by Romeo Bernardo

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In the wake of the higher than expected August inflation and continuing monetary tightening in the U.S., the Monetary Board today raised its policy rates by another 50bp, bringing the overnight reverse repurchase (RRP) rate to 4.5%. This is the Monetary Board’s fourth successive rate hike, with increases totaling 150bp since May.Notwithstanding the cumulative impact of tighter policy, the BSP now forecasts the average inflation for 2018 and 2019 to breach the upper end of its inflation target of 2-4%. Senior BSP officials announced upward adjustments to the inflation forecasts as follows: for 2018, from 4.9% to 5.2%, for 2019, from 3.7% to 4.3%, for 2020, no change at 3.2%. Factors cited for the upward adjustment includes the higher August inflation outturn, adverse impact of the recent typhoon on agriculture output, as well as the rise in global crude oil prices. Nonetheless, they added that passage of the proposal currently in congress to place rice under tariff protection instead of the current quota system, could reduce inflation by 0.7% and bring the 2019 inflation forecast within target.Officials continued to stress that the peak of inflation is expected this quarter and that future actions will be data dependent. The Monetary Board’s action today was signaled ahead and widely expected. Local equities rose 0.7% while the peso gained close to 10 centavos. Today’s meeting was held absent Governor Nestor Espenilla who took a two-week medical leave (September 19- October 2).