The Philippine central bank maintained its key policy rate at 3.50 percent but raised its reserve requirement by a further 100 basis points to 20 percent due to solid domestic activity and "to help mitigate potential risks to financial stability that could arise from the strong growth in domestic liquidity."
The Bangko Sentral ng Pilipinas (BSP), which has maintained its benchmark overnight borrowing rate since October 2012, said the latest forecast shows inflation staying within the bank's 2014 target range of 4.0 percent, plus/minus one percentage point, and the 2015 target of 3.0 percent, plus/minus one percentage point.
"At the same time, the Monetary Board noted that the balance of risks to the inflation outlook continues to lean to the upside, with potential price pressures emanating from the possible uptick in food prices, as a result of expected drier weather conditions, as well as pending petitions for adjustments in transport fares and power rates," the BSP said.
In March the BSP raised its reserve requirements by 100 basis points and said it would consider further adjustments in its policy tools to safeguard price and financial stability. In 2013 the BSP cut the rate of its Special Deposit Account (SDA) by a total of 150 basis points to 2.0 percent to reduce the inflow of foreign capital and to divert those funds to more productive use.
Headline inflation in the Philippines rose to 4.1 percent in April from 3.9 percent, slightly higher than expected by the central bank, but within its forecast range of 3.6 to 4.5 percent.
"The BSP also remains prepared to implement policy actions as needed to prevent a potential build-up in inflation expectations and financial imbalances," the bank said.
Gross Domestic Product in the Philippines rose by 1.5 percent in the fourth quarter of 2013 from the previous quarter for annual growth of 6.5 percent, down from 6.9 percent.
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