The Philippines and Indonesia resorted to their second consecutive interest rate hikes on Thursday, after the US Federal Reserve tightened its policy for a third time this year.
The Monetary Board of the Bangko Sentral ng Pilipinas raised the overnight reverse repo rate by 50 basis points to 4.50 percent to anchor inflation expectations. A similar action was taken at its August meeting.
The board assessed that further tightening of monetary policy was warranted by persistent signs of sustained and broadening price pressures.
Bank Indonesia raised its key 7-day reverse repo rate by 25 basis points to 5.75 percent, in an attempt to contain capital outflows amid a weaker rupiah.
The bank had hiked the rate by a quarter-point at its previous policy session in August.
“The decision is consistent with ongoing efforts to lower the current account deficit within a manageable threshold while maintaining the attractiveness of the domestic financial markets, thus further strengthens Indonesia’s external resilience despite widespread global uncertainty,” the bank said.
With today’s action, both central banks have lifted their key interest rates by cumulative 150 basis points since May.
Gareth Leather, an economist at Capital Economics, expects both Indonesia’s and Philippine central banks to tighten its policy again this year as rupiah and peso are set to remain under pressure in the months ahead.
The economist expects two more rate hikes from Indonesia before the end of this year. Leather forecast a further 50 basis-point increase in rates in the Philippines in 2018.
The Philippine economy faces higher inflation expectations and domestic demand conditions held generally firm even as the previous monetary policy responses continue to work their way, the central bank said.
The monetary board of BSP emphasized the need for timely and appropriate non-monetary measures that will further mitigate the impact of supply-side factors on inflation, including rice tariffication.
Bank Indonesia expects inflation to remain within the target range of 2.5 to 4.5 percent in 2018. The current account deficit is forecast to shrink to around 2.5 percent of GDP in 2019, thanks to the government measures to stimulate exports and reduce imports.
Elsewhere in Asia, Taiwan’s central bank left its key interest rate unchanged at 1.375 percent on Thursday, citing a stable inflation outlook.