Philippines raises interest rate for second month amid peso rout

[MANILA] The Philippine central bank increased its benchmark interest rate for a second month, following through on a pledge to curb inflation and support one of Asia's worst-performing currencies.

Bangko Sentral ng Pilipinas increased the overnight reverse repurchase rate by 25 basis points to 3.5 per cent, it said in a statement in Manila on Wednesday. Eleven of the 17 economists surveyed by Bloomberg predicted the decision, with the rest expecting no change.

A sell-off in global emerging markets has pushed central banks from Argentina to Indonesia to take stronger action to stem outflows and bolster their currencies. In the Philippines, domestic inflation pressure is adding to the market turmoil as global trade tensions rise, the US Federal Reserve turns more hawkish and the European Central Bank takes steps to withdraw policy stimulus.

Governor Nestor Espenilla has warned that inflation pressure from rising fuel costs may spread to other parts of the economy and potentially boost wage demands. In an interview in Tokyo on Tuesday, he laid out the case for another rate increase, pledging to bring inflation back into the 2 per cent to 4 per cent target.

Consumer prices rose 4.6 per cent in May from a year ago, the fastest pace in five years, while the economy is expanding more than 6 percent on the back of an infrastructure push.

The peso is vying with India's rupee as Asia's worst-performing currency this year, down more than 6 per cent against the US dollar. The Philippine Stock Exchange index has lost more than 14 per cent.

BLOOMBERG