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The
Philippine central bank may raise interest rates should
inflation accelerate and risk its target for 2009, said
Bangko Sentral ng Pilipinas (BSP) Governor Amando
Tetangco Jr.
“If we
see there are clear signs that the inflation target for
2009 is at risk, then we will have to act preemptively
and decisively,” Tetangco said in an interview with
Bloomberg Television in Manila.
The
$118-billion economy may grow between 6 percent and 6.7
percent this year, he said.
Asian
central banks are considering raising borrowing costs as
record rice, oil and other commodity costs cause
inflation to accelerate. Indonesia this month
unexpectedly raised interest rates for the first time in
more than two years. Thailand said it might raise its
benchmark rate if price increases quicken.
Philippine consumer prices, climbing at the fastest pace
in three years, will likely gain more than the central
bank’s target of 3 percent to 5 percent this year
because of surging oil and food prices, Tetangco said in
the May 25 interview. Inflation reached 8.3 percent in
April.
“Inflation has gone up to a level where a rate increase
is called for,” said Sergio Edeza, treasurer at Rizal
Commercial Banking Corp. in Manila. “Bond yields already
anticipate higher inflation.”
Ten-year
bond yields of 9.131 percent are near the highest in
almost two years.
Edeza
said inflation could hit 9.5 percent in May and climb to
double-digit in the coming months.
“I would
characterize the stance of monetary policy in the
Philippines as neutral but, at the same time cautious,
because of the risks to the inflation outlook,” he said.
Supply
constraints
Still,
price pressures so far aren’t demand-driven and monetary
policy “may not be the best tool to use” against cost
increases caused by constraints in food and energy
supply, he said.
Inflation will slow by the fourth quarter this year and
continue easing next year, Tetangco said. “By 2009, the
rate is projected to be within the target” of 2.5
percent to 4.5 percent.
The
monetary board will meet on June 5 to decide whether to
keep or raise its 5-percent benchmark interest rate.
Bangko Sentral hasn’t increased rates since October
2005.
Tetangco,
who led policymakers in cutting rates to a 16-year low
in January, aims to cool inflation without stamping out
economic growth.
“While
monetary policy is supposed to achieve price stability,
we, at the same time, have to be able to foster an
environment conducive to sustainable growth,” he said.
Economic
growth this year will probably stay at a “respectable”
pace despite a “deceleration” from 7.3 percent in 2007,
Tetangco said, citing strong domestic demand. The
central bank would focus more on inflation if expansion
meets the government’s estimates, he said.
Rising
prices in a nation that imports most of its oil and is
the world’s biggest buyer of rice probably damped growth
in the first three months of 2008 to as little as 5.2
percent from 7.4 percent in the fourth quarter, Economic
Planning Secretary Augusto Santos said last week.
First-quarter growth will slow to 5.9 percent from a
year earlier, according to the median estimate of 13
economists surveyed by Bloomberg.
Tetangco
signaled he may avoid raising the amount of money that
banks set aside as reserve in its fight against
inflation, calling it a ``blunt instrument” that affects
everyone.
The
central bank also won’t also use the exchange rate to
temper inflation, and doesn’t target any specific level
for the peso, the governor said. The currency has
weakened to the lowest in six months against the dollar.
“There’s
fundamental support for the peso,” he said, citing the
$3.4 billion balance of payment surplus forecast for
2008. “Most analysts still see that the weakness of the
currency we’ve seen so far is likely going to be
temporary and that there’s going to be a recovery toward
the end of the year.”
Banks,
grappling with lower income from trading after bond
prices dropped and the peso weakened, may step up
lending this year and that should boost growth, the
governor said. |
