The Monetary Board, policy-making body of the Bangko Sentral ng Pilipinas (BSP), raised the reverse repurchase rate by 25 basis points to 3.5 percent effective Thursday, June 21.

Interest rates on overnight lending and deposit facilities were raised accordingly, the central bank said.

The move was done in response to the peso's slide to a 12-year-low against the US dollar. It was the second straight policy rate by the Monetary Board.

After the announcement, the peso closed at P53,48 against the US dollar, the day's lowest. It was four centavos weaker than Tuesday's P53.44. Volume reached $650 million from the previous day's $733.70 million.

" In deciding to raise the BSP’s policy interest rate anew, the Monetary Board noted that inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action," the board said.

"Although inflation expectations remain within the target range for 2019, elevated expectations for 2018 highlight the risk posed by sustained price pressures on future wage and price outcomes," it added.

"The Monetary Board believes that further policy action enables the BSP to reinforce its signal on safeguarding macroeconomic stability in an environment of rising commodity prices and ongoing normalization of monetary policy in advanced economies," it said.

In its website, the central bank said in a reverse repurchase operation, the BSP also acts as the seller of government securities and the bank’s payment to the BSP has a contractionary effect on liquidity.

"The interest rate for the overnight RRP facility signals the monetary policy stance and serves as the BSP's primary monetary policy instrument," the central bank website said. DMS