Singapore and the Philippines’ central banks have unveiled a surprise tightening of monetary policy in the latest sign of heightened inflation concerns in the Asia Pacific.
Bangko Sentral ng Pilipinas (BSP) lifted its benchmark interest rate by 0.75 percentage point in an unscheduled rate hike on Thursday, as the central bank signalled it was ready to take further action to tackle rising inflation.
The hike brings the overnight borrowing rate to 3.25 percent, following two back-to-back rate hikes of 0.25 percentage point in May and June.
The tightening came in the run-up to the BSP’s regular policy meeting scheduled for August 18.
“In raising the policy interest rate anew, the Monetary Board recognized that a significant further tightening of monetary policy was warranted by signs of sustained and broadening price pressures amid the ongoing normalisation of monetary policy settings,” BSP Governor Felipe Medalla said, adding that the central bank stood ready to take “further necessary actions to steer inflation towards a target-consistent path over the medium term”.
“To say this is an unusual move by the BSP is an understatement, given that they have been amongst the most dovish and reluctant hikers in Asia,” Jeffrey Halley, senior market analyst for the Asia Pacific at OANDA, said in a note.
“The US Consumer Price Index and the MAS move today, along with the relentless pressure on the Philippines Peso have swayed BSP’s hand, underling the pressures facing Asian central banks now.”
Singapore’s central bank also tightened monetary policy in an unscheduled move, sending the Singapore dollar 0.7 percent higher.
The move was the fourth tightening in nine months by the Monetary Authority of Singapore, which manages monetary policy through exchange rate settings instead of interest rates due to the city-state’s heavy trade flows.
The moves by Philippine and Singapore authorities came a day after the central banks of South Korea and New Zealand hiked their benchmark interest rates by half a percentage point.
In the United States, the Federal Reserve is widely anticipated to unveil a historic 1 percentage point rate hike this month, after inflation last month hit a new four-decade high of 9.1 percent.
Inflation in the Philippines hit its highest level in nearly four years in June and is widely expected to exceed the 2-4 percent target band for the year.
Singapore’s central bank expects core inflation in the range of 3-4 percent for the year, up from an earlier forecast of 2.5-3.5 percent.
The central bank also anticipates Singapore’s gross domestic product (GDP) growth will be at the lower end of its 3-5 percent forecast after preliminary data on Thursday showed Singapore’s GDP grew 4.8 percent in the second quarter, missing forecasts.