of domestic goods and services. meanwhile, domestic output expansion remains robust on account of the expansion in capital formation and household consumption, as well as strong performance of the services and industry sectors. recent high - frequency sector indicators of economic activity also continue to point to firm growth prospects in the near term. the growth momentum was also supported by a strong and stable philippine banking system. during the review quarter, banks ’ balance sheets exhibited sustained growth in assets and deposits. furthermore, asset quality indicators remained healthy while capital adequacy ratios continued to be above international standards. domestic liquidity also remained ample, driven by robust credit growth. however, amid this resilience, the philippine economy is being tested by external headwinds emanating from the recent and planned interest rate hikes by the us fed and brewing trade tensions among key economies. these are exerting depreciation pressures on the peso. the country ’ s current account deficit and higher inflation also dampened investor sentiment during the quarter. 1 / 2 bis central bankers'speeches these developments formed the backdrop for the bsp ’ s policy decisions during the second quarter of 2018. in brief, the bsp raised its policy rate by 25 basis points each in may and june, bringing the overnight reverse repurchase ( rrp ) rate to 3. 50 percent from 3. 0 percent a quarter ago. the interest rates on the overnight lending and deposit facilities were likewise raised accordingly. in deciding to hike the policy rate during the quarter, the monetary board noted that the increase in inflation expectations and in the risks of possible second - round effects argued for timely and decisive monetary policy actions from the bsp. although inflation expectations remain within the target range for 2019, elevated expectations for 2018 highlighted the risk posed by sustained price pressures on future wage and price outcomes. equally important, upside risks continued to dominate the inflation outlook, as various measures of core inflation continued to rise. meanwhile, the bsp kept a close eye on developments in the foreign exchange market and noted their potential impact on inflation in the coming months. the bsp believes that its monetary policy actions during the quarter signal its strong commitment to safeguard macroeconomic stability in an environment of rising commodity prices and ongoing normalization of monetary policy in advanced economies. the bsp likewise reiterates its support for carefully coordinated efforts with other government agencies in implementing non - monetary measures to help mitigate the impact of supply - side factors on inflation and social welfare. accordingly, the bsp will sustain

its utmost vigilance. in particular, we are taking into account the potential price pressures of excessive volatility in the foreign exchange market. while we believe that our fundamentals remain solid and healthy, sustained pressures on the peso could adversely affect inflation expectations. further, some demand side pressure may also be already feeding into inflation. all of these warrant a firm and timely monetary response. therefore, let me say that the bsp is considering strong follow - through monetary adjustment at the next meeting of the monetary board in august. the pace and magnitude of policy tightening will necessarily be dependent on our comprehensive and rigorous assessment of all relevant data and forecasts. this is consistent with our long - standing disciplined approach to inflation targeting. we stand by our primary mandate of promoting price stability conducive to a balanced and sustainable growth of the economy. in a moment, we will provide you with a more detailed discussion of the factors behind the monetary board ’ s recent decisions and its assessment of price and output conditions. also, we will have a brief discussion of the results of the bsp ’ s latest quarterly loan officers ’ survey. we look forward to your questions at the end of these two presentations. thank you and good morning. 2 / 2 bis central bankers'speeches