Today the Monetary Bord of Bangko Sentral ng Pilipinas (BSP) increased the key interest rates by 50 basis points. The interest rate for the overnight borrowing or reverse repurchase (RRP) facility was raised to 5.75% and the interest rate for overnight lending or repurchase (RP) facility was raised to 7.75%.
It the press release the central bank reaffirmed that in accordance with its mandate inflation control is the foremost priority of the BSP. The BSP’s baseline forecasts show the risk of inflation exceeding the inflation targets for 2008 and 2009. Price pressures have increased even as they are projected to ease starting late 2008. Second-round effects have set in, as evident in the rise in core inflation.
Additionally BSP raised its inflation estimate to a range of 9% to 11% today. Inflation may peak at 12% this October. In June inflation rate was already reported at 11.4%.
On June 5th the central bank already raised their key interest rates by 25 basis points. The next meeting of the Monetary Board is scheduled for August 28th, 2008.
Today Bank of Thailand raised its key interest rate by 0.25% to 3.50%. This decision was already expected by economists after inflation reached 8.9% last month.
After raising fuel prices consumer confidence dropped in Thailand and Finance Minister Surapong Suebwonglee already acknowledged that Thailand may not reach its GDP growth target of 6% since higher oil and food prices are a major threat to growth. In the first quarter of 2008 the economy still grew at a rate of 6%.
The stock market continued to fall among concerns of higher interest rates and more protests against Prime Minister Samak Sundaravej government.
Today the Indonesian central bank, Bank Indonesia, increased again the key interest rate by 25 basis points to 8.75%. This was third rate increase after Bank Indonesia increased their rates to 8.25% in May 2008 and 8.50% in June 2008.
Bank Indonesia, headed by Governor Boediono wants to avoid second round price effects and hopes to keep inflation below 12.5% in 2008. On July 1st, the National Statistics Office reported that consumer prices rose by more than 11%, based on a new consumption pattern. Without this modification consumer prices would have risen by 12.8% in June 2008.
On August 5th, 2008 Bank Indonesia will hold its next regular monthly monetary policy meeting.
Since the beginning of 2008 most of the Asian governments had to cut their fuel subsidies because skyrocketing crude oil prices threatened their budget balance. As a result inflation rates increased to their highest level in may 2008. The central banks of India, Indonesia and the Philippines already raised their key interest rates this June and Malaysia and Thailand are expected to follow at their next central bank meetings.
At the moment the GDP is still growing at a respectable level but recent data already shows a remarkable decline in consumer confidence. With high inflation and further possible rate increases investors will have to find better places to invest their money than in the stock market.
| country |
GDP growth (YoY) |
inflation (may 08) |
key interest rate |
local currency vs EURa) |
| India |
8.8% |
7.9% |
8.00%1) |
-14.1% |
| Indonesia |
6.3% |
10.4% |
8.50%2) |
-4.1% |
| Malaysia |
7.1% |
3.8% |
3.50%3) |
-3.8% |
| Philippines |
5.2% |
9.6% |
5.25%4) |
-13.0% |
| Thailand |
6.0% |
7.6% |
3.25%5) |
-17.4% |
a) since 31.12.2007
1) On June 5th, 2008 Bank Indonesia raised its key interest rate by 25 basis points to 8.5%.
2) On June 4th, 2008 the Reserve Bank of India raised its key interest rate by 25 basis points to 8%.
3) On May 26th 2008 Bank Negara Malaysia kept its key interest rate unchanged (no change since April 2006)
4) On June 5th, 2008 Bangko Sentral ng Pilipinas raised its key interest rate by 25 basis points to 5.25%.
5) On May 21st, 2008 Bank of Thailand kept its interest rate unchanged (no change since August 2007)
