(UPDATE) Central bank hikes interest rates by 25 bps
Reuters
First Posted 16:14:00 08/28/2008
MANILA, Philippines -- The Bangko Sentral ng Pilipinas, the country's central bank, raised its interest rates by a quarter percentage point on Thursday, tightening policy as expected for a third month in a row to combat inflation that is running at 17-year highs despite a slowing economy.
"Monetary policy needs to be appropriately tight to stabilize inflation to within the target range over the policy horizon and to help manage inflation expectations," governor Amando Tetangco said in a statement.
"Moreover, fluctuations in international oil prices continue to pose a major risk to the inflation outlook."
The government reported earlier on Thursday the economy grew an annual 4.6 percent in the second quarter, down from the revised 4.7-percent expansion in the first quarter.
The government sharply revised first-quarter growth to 4.7 percent in the first quarter from a year earlier compared with the previous figure of 5.2 percent.
The central bank also said Thursday it expected annual inflation in August to range from 11.8-12.6 percent, possibly topping the 12.2-percent inflation in July.
The move brings the overnight borrowing rate to 6.00 percent and the overnight lending rate to 8.00 percent.
Growth concerns and expectations that inflation would likely peak in the fourth quarter prompted some economists to predict that the central bank's latest rate increase would be its last for the year. But others see more tightening in store.
"The bias is for more interest rate hikes," said Nick Bibby, regional economist with Barclays Capital, which expects the monetary authority to stop raising borrowing costs towards the end of the year.
"The central bank is saying that oil prices continue to pose a risk and that inflation is probably going to be exceeding the target in 2008 and more importantly in 2009."
As expected, the central bank did not change the availability of its Special Deposit Accounts window. But rates at this facility would increase in tandem with the rise in headline interest rates.
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