Filipino Central Bank Moves Closer to an Interest Rate Rise

April 22, 2010

Bangko Sentral ng Pilipinas left its overnight borrowing rate at 4.0% after this month’s meeting but, as at the prior meeting on March 11, cut rediscounting window quotas by P20 billion to just P20 billion.  The move becomes effective May 3.  The quota at the start of March had been P60 billion.  Furthermore, Assistant Governor Amador indicated that a rate increase is possible at one of the next meetings scheduled for June 3, July 15, and August 26.

A statement was released that observed a supply-side increase in inflation but called inflation expectations contained and second-order inflationary effects manageable.  Officials pledged to be vigilant in the future on ensuring that inflation holds within target.  Economic growth accelerated in the final quarter of 2009 and is expected to show steady improvement, while financial conditions have been stable.  Accordingly, officials have moved forward on “disengaging from crisis intervention measures,” hence the reduced budget for the rediscounting window.  During the world recession, the central bank cut its policy interest rate by 50 basis points each in December 2008 and January 2009 and by 25 bps each in March, April, May and July of last year.  An increase of 25 basis points in August 2008 had lifted such to a peak of 6.0%.  Not wanting to let the clue of a coming rate hike dangle, the most likely scenario is a hike announced on June 3rd but by a safe 25 basis points.  However, a disappointing, that is weaker-than-expected, first-quarter GDP report could lead officials to postpone the first move more deeply into the year.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission. 



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