Philippines sticks with bold rate increase to cool inflation
THE Philippine central bank delivered its second 75 basis-point interest-rate increase of this year, as it sought to support the peso and cool inflation by matching the pace of hikes by the Federal Reserve.
Bangko Sentral ng Pilipinas raised the overnight reverse repurchase rate to 5 per cent on Thursday (Nov 17), as predicted by all but one in a Bloomberg survey of 24 economists.
The adjustment, the sixth this year, is the highest in nearly 14 years, and compares with the US Federal Reserve’s 3.75-4 per cent policy rate.
One analyst anticipated a half-point increase, although governor Felipe Medalla had already flagged the three-quarter-point move as early as Nov 3.
At a media briefing, Medalla said an “aggressive monetary policy action” was needed to tame inflationary pressures.
The Philippines has been at the forefront of monetary tightening in South-east Asia, having raised rates by a total 300 basis points since May to cool one of the region’s fastest inflation at 7.7 per cent and shore up its currency. The peso is South-east Asia’s worst performer this year, with losses of more than 11 per cent.
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Medalla has said a move that big was needed to match the Fed’s 75 bps rate increase early this month and keep the differential between US and Philippine rates from narrowing sharply.
For the Philippines, a weaker peso fans costs of importing staples from fuel to rice in a nation that’s experiencing the fastest price growth since December 2008.
Elsewhere in South-east Asia, Indonesia has pivoted to steeper increases to curb price pressures, despite being a late entrant to the tightening club.
Bank Indonesia announced a key interest rate hike of 50 basis points, amid the rupiah emerging as Asia’s worst performer this quarter.
The median forecast indicates the Philippines’ policy rate will rise to 5.75 per cent by the end of the first quarter next year, compared with a forecast of 5.0 per cent in the previous poll in September. BLOOMBERG, REUTERS
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