The Bangko Sentral ng Pilipinas (BSP, the central bank) has tightened monetary policy for the second meeting in a row. Meeting on May 5th, the central bank's monetary board announced a 25-basis-point increase in its two main interest rates, raising the overnight lending rate (the repurchase, or repo, rate) to 6.5% and the overnight borrowing rate (the reverse repo rate) to 4.5%. The board also increased interest rates on term repo, reverse repo and special deposit accounts by a similar amount. So far this year inflation as measured by the consumer price index has remained within the central bank target's range of 3-5%. But in its latest policy statement the BSP bank said that the target for the year as a whole "remains at risk", mainly owing to the high international price of oil. An increase in consumers' inflationary expectations was also a concern, the central bank said.

Fiscal policy has been much tighter than expected so far this year, with the government's deficit in the first three months equivalent to only 23% of the official target, but the BSP has still felt able to tighten monetary policy owing to signs of sustained economic growth. These signs include high rates of capacity utilisation in the manufacturing sector, which has remained consistently above 80%, as well as strong growth in commercial banks' loans. The BSP is, however, concerned at the possibility that strong inflows of foreign capital could contribute to inflationary pressures. Net portfolio investment reached US$1.6bn in the first four months of 2011, almost three times the year-earlier level of US$595m, according to BSP figures.