Unchanged Central Bank Policy in The Philippines Continues

July 15, 2010

Several Asian central banks, but not yet Bangko Sentral NG Pilipinas, have started to raise their interest rates.  The Filipino overnight borrowing and lending rates were left at 4% and 6%, respectively, where such have been since cuts of 25 basis points in July 2009.  Those reductions had been the eighth by the central bank since December 2008.  Before monetary easing began, the borrowing rate had been at 6.0%.  Most analysts were not expecting a rate increase today, and officials called the current policy appropriate because of a favorable inflation outlook, in-target price expectations, and global economic uncertainties.

Nevertheless, a new statement also drops more hints that the onset of rate normalization may not be far away, devoting a whole paragraph to a list of upside price risks: namely rising commodity prices, insufficient rainfall, buoyant consumer and business confidence, stronger-than-expected domestic demand, ample liquidity and credit growth, and the higher cost for power.  CPI inflation is targeted by the central bank at 3.5-5.5% this year and 3-5% in 2011.  CPI inflation is presently at 3.9%, while export-led GDP growth rose to 7.3% in the first quarter of this year.

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



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