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PHL to raise interest rates in 2014 as price pressures mount, say economists

October 4, 2013 5:07pm
Despite having a regime of benign inflation, Philippines is facing a possible resurgence of upside risks from price pressures that may force monetary policy changes as early as next year, economists said Friday.
 
“Current policy rate is at record-low... and the BSP (Bangko Sentral ng Pilipinas) is likely to avoid overheating the economy,” Gundy Cahyadi, economist at DBS Bank Ltd. in Singapore said in an e-mail message to GMA News Online.
 
Inflation quickened to its fastest pace at 2.7 percent in September, largely on higher food and utilities costs, but remains well below the central bank's 3 to 5 percent target for the year.
 
In a separate e-mail message, Emilio Neri Jr., economist at Bank of the Philippine Islands, said the September price movement “validates our view that inflation has already hit a bottom last August and may be expected to accelerate.”
 
Neri sees inflation closing out the year at 3 percent.
 
Economists earlier interviewed by GMA News Online said inflation bottomed out in August as it settled at a four-year low of 2.1 percent.
 
While Neri thinks central bank is unlikely to raise policy rates this year, he said: “Faster-than-expected inflation print reiterates, however, a more compelling case for the BSP to revise (i.e. to raise or widen) it’s relatively low 2015 inflation target.”
 
Earlier, the central bank lowered its 2015 inflation target to 2 to 4 percent.
Bangko Sentral tweaks monetary policy to keep inflation stable in line with its price stability mandate.
 
Neri said that any upward revision of the 2015 target band will “demonstrate its ability to adapt to the rapid changes in sentiment in the external environment.”
 
He noted the faster inflation in September could “lead to the immediate concern that Philippine inflation is accelerating much faster than policy makers anticipated, potentially leading more analysts to predict an early BSP rate hike by 2H2014.”
 
The central bank has kept benchmark rates  at record lows of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending, and helped keep the economy buoyant. 
 
“Recent comments from the BSP indicate that the rate hikes are in the offing next year, even if rates are likely to remain stable for now,” said Cahyadi. 
 
He noted a gradual normalization of rates is warranted as the economy is expected to remain strong and growing at least 7 percent in 2013 and 6.7 percent in 2014.
 
The Philippine economy grew by 7.6 percent in the first half, the fastest in Southeast Asia. – VS, GMA News



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