Philippine Central Bank Unexpectedly Hikes Key Rate For Fifth Straight Session

The Philippines' central bank unexpectedly raised its key interest rate on Thursday for a fifth consecutive session, citing upside risks to the inflation outlook.

The Monetary Board, led by Governor Nestor Espenilla Jr., raised its benchmark interest rate by 25 basis points to 4.75 percent, the Bangko Sentral Ng Pilipinas said. Economists had expected the bank to leave rates unchanged.

The previous change in the rate was a 50 basis point hike in September. The bank has raised the rate in every policy session starting May.

Policymakers decided to raise the rate by a quarter-point in November, given the upside risks to the inflation outlook and given that inflation expectations have remained elevated as supply-side, possible wage pressures continue to drive price development, the bank said.

Though the latest inflation forecasts show inflation settling within the target band of 3.0 percent plus or minus 1.0 percentage point in both 2019 and 2020, policymakers weighed the impact of non-monetary measures, including the rice tariffication bill and the suspension of the oil excise tax.

They also pointed out that inflation expectations have remained elevated as supply-side and possible wage pressures continue to drive price developments.

"Prospects for the domestic economy remain generally favorable and allow some scope for a measured adjustment in the policy rate to rein in inflation expectations and preempt further second-round effects," the bank said.

Hence, the Monetary Board deemed it necessary to respond with proactive policy action to help temper the risks to the inflation outlook including those emanating from continued uncertainty in the external environment, the bank added.

The board continues to emphasize the need for follow-through non-monetary measures to mitigate the impact of supply-side factors on inflation and remains prepared to take appropriate policy actions as needed to ensure the achievement of its price and financial stability objectives, the BSP said.

"Overall, if inflation falls back as we expect over the coming months, then we believe today's hike will be the last in the current cycle," Capital Economics economist Alex Holmes said. "We expect rates to be left unchanged at 4.75 percent until the end of 2019."