Philippine central bank signals tightening soon

The Philippine central bank, in its strongest hint that interest rates may be hiked soon, said on Thursday that “measured” adjustments in monetary policy may be needed even though it expects inflation to stay within its target.

By (Reuters)

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Published: Fri 21 Mar 2014, 10:47 PM

Last updated: Fri 3 Apr 2015, 5:56 PM

Speaking ahead of a policy review on March 27, Bangko Sentral ng Pilipinas Governor Amando Tetangco told reporters an “early” and “gradual” adjustment in monetary policy stance rather than “discreet movements” would be less disruptive to businesses.

“Even as domestic inflation over the policy horizon remains within target, measured adjustments may be warranted given external developments including the heightened geopolitical risks that could result in volatility in international commodity prices,” Tetangco said.

Separately, Tetangco told Reuters policy adjustments may possibly involve key interest rates and other policy tools, though he did not elabourate.

On Thursday morning, the peso was down, along with all emerging Asian currencies after Federal Reserve Chair Janet Yellen indicated a rate hike sooner than anticipated and the yuan dropped sharply.

After Philippine inflation unexpectedly slowed in February, economists took the view that the central bank would keep the overnight borrowing rate steady at a record low 3.5 per cent next week.

But Tetangco’s fresh comments could change views.

“The governor is certainly sounding more hawkish, hinting at rates normalisation,” Trinh Nguyen, economist at HSBC, said after his Thursday remarks.

HSBC has previously forecast two rate hikes in the second half of 2014 “but the comments suggest that they may come earlier than expected,” she said.

Emilio Neri, economist at the Bank of the Philippine Islands, said it was possible the central bank will raise both the policy rate and the special deposit account rate by 25 basis points next Thursday.

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