With Indonesia and Vietnam both lowering interest rates in the past two months and Thailand under increasing pressure to follow suit, the Philippines is looking like the only Asean member likely to increase its rates this year.
A Bloomberg survey predicted that the central bank, the Bangko Sentral ng Pilipinas (BSP), would hold its benchmark rate at a record-low of 3 per cent this week.
The Philippines, one of the world’s most vibrant economies, is looking at a sixth-straight year of growth exceeding 6 per cent. But the peso is among Asia’s worst-performing currencies this year and the uncontrolled credit growth suggests it might be time to tighten up the money markets. So far the BSP has refused to make changes.
The BSP’s governor, Nestor Espenilla, said the Monetary Board had decided to leave its overnight reverse repurchase facility unchanged at 3 per cent: the same for the corresponding interest rates on the overnight lending and deposit facilities.
The bank announced that its reserve requirement ratio was also left at 20 per cent.
“The Monetary Board believes that prevailing monetary policy settings continue to be appropriate,” Espenilla told the media.
The board’s decision to retain benchmark rates was due to manageable inflation, he said.
A risk to movement of prices of basic goods and services was the proposed tax reform programme, which could exert potential pressures on prices, explained Espenilla.
“At the same time, while prospects for global economic growth have stayed broadly upbeat, geopolitical tensions and lingering uncertainty over macroeconomic policies in advanced economies continue to pose downside risks to external demand,” the governor said.
Offsetting the risk was the solid outlook for domestic economic activity.
“Looking ahead, the BSP will continue to be vigilant against any risks to the inflation outlook and will adjust its policy settings as needed to ensure stable prices while supporting sustainable economic growth,” Espenilla said.
The economy has proved remarkably resilient to the political turmoil that has rocked the archipelago. Thousands have attended a day of protest this week over blood-thirsty policing under President Rodrigo Duterte.
Rival pro-Duterte rallies also attracted several thousand protesters.
Meanwhile, consumer prices have risen by 3.1 per cent last month year on year, up from 2.8 per cent in July, with Espenilla predicting inflation of around 3.7 per cent.
Alice Fulwood of UBS Group AG in Singapore told Bloomberg: “The currency has weakened, the economy is growing pretty quickly and you’d expect inflation pressure to start coming through. Stronger inflation pressure next year is one of the reasons they’ll be raising rates.”
Bangko Sentral ng Pilipinas. Picture credit: Wikimedia