Philippines Delivers Fifth Rate Hike to Curb Inflation
By Siegfrid Alegado, Cecilia Yap and Ditas Lopez
The Philippine central bank raised its benchmark interest rate for a fifth straight meeting to curb inflation, joining Indonesia in tightening monetary policy on Thursday.
Bangko Sentral ng Pilipinas increased the overnight reverse repurchase rate by 25 basis points to 4.75 percent, the highest since 2009, it said in a statement in Manila. Rates have been raised 175 basis points since May, among the most aggressive tightening action in Asia.
“The Monetary Board believes that prospects for the domestic economy remain generally favorable and allow some scope for a measured adjustment in the policy rate to rein in inflation expectations and preempt further second-round effects,” the central bank said.
The proactive policy action will help temper the risks to the inflation outlook, including uncertainty in the external environment amid tighter global financial conditions and trade tensions, the central bank said.
Key insights
Eleven of 19 economists surveyed by Bloomberg predicted the decision, as inflation remains at a nine-year high. The rest forecast no change The central bank predicted inflation will return to the target range of 2 percent to 4 percent next year after breaching the goal this year. It estimated price gains to average 3.5 percent in 2019 and 3.3 percent in 2020 Inflation was 6.7 percent in October. While prices of oil and rice have eased, pressure remains after higher wages and transport costs in Manila were approved recently The prospect of higher rates in the U.S. adds to risks of financial market volatility and capital outflows. While the peso is still down more than 5 percent this year, it has recovered recently and is among the best performers in emerging markets in the past month. The peso gained 0.5 percent to 52.805 pesos per dollar on Thursday before the decision was announced.
What economists say
Bloomberg Economists say Bangko Sentral ng Pilipinas is not taking any chances that the recent reprieve in the peso and oil prices will be sustained. That should help it anchor inflation expectations. We see the currency remaining vulnerable until inflation peaks and the current-account deficit narrows. Risk appetite could also falter if the stalemate between the U.S. and China persists. This makes it likely that the overnight borrowing rate will be raised further.
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President Rodrigo Duterte’s record spending on roads and railways helped shield the economy from the impact of rising prices and higher borrowing costs. Growth held at more than 6 percent in the third quarter, still among the fastest in the world.
© 2018 Bloomberg L.P
