April 20, 2018 / 2:51 AM / 3 months ago

UPDATE 2-Philippine c.bank says policy actions appropriate, data dependent

* Comments follow steep drop in stocks amid inflation worries

* BSP may keep policy steady this year if inflation outlook tame

* Major Philippine bank chairman says interest rates need to rise (Recasts, adds quotes from deputy governor and a company chairman)

By Manolo Serapio Jr and Enrico Dela Cruz

MANILA, April 20 (Reuters) - The Philippine central bank is satisfied with its current policy actions despite a weaker currency, rising inflation and falling stocks, and future moves will remain driven by data, officials said on Friday.

Worries over speeding inflation fuelled heavy foreign selling on Manila’s stock market on Thursday, pulling the main index down more than 3 percent at one stage to a one-year low. The key index was up 0.7 percent at 0635 GMT on Friday.

While the central bank has recognised that inflation expectations have started to rise, it kept interest rates steady at its last policy meeting in March.

Some economists, however, say that policymakers may raise rates for the first time in more than three years at the next meeting on May 10.

“In my view, the sum of BSP (Bangko Sentral ng Pilipinas) actions remains appropriate for the situation,” central bank Governor Nestor Espenilla told reporters in a text message.

Philippine inflation quickened in March to its fastest pace in five years, prompting Espenilla to say earlier this month that the central bank would review the need for a measured policy response.

“Interest rates, I believe, need to rise and we’ve been expecting it for some time now,” said Jaime Augusto Zobel de Ayala, chairman of Bank of the Philippine Islands, the country’s No. 3 lender, and conglomerate Ayala Corp.

“Our currency has shown a little bit of weakness in relative terms versus other countries,” Zobel de Ayala told reporters.

On Friday, Espenilla said the central bank’s term deposit facilities, which allow it to mop up liquidity, “have been moving in the right direction as guided and enabled by our open market operations”.

“This is having the desired effect on other market rates that in turn help regulate the economy and control inflation. The signal can be further reinforced by other BSP actions as deemed necessary by developments.”

Monetary policy will remain data-dependent, central bank Deputy Governor Diwa Guinigundo told a separate media briefing on Friday.

Guinigundo said if the central bank’s next inflation outlook, to be released in May, falls within its 2-4 percent target, “I think the likelihood of keeping the policy rates throughout the year will be higher.”

By the third or fourth quarter this year, inflation is expected to “stabilise through 2019, dropping to around 3 percent by then,” Guinigundo said.

“Without this perspective, the market’s inflation expectations would tend to deviate from the BSP’s forecast... This is something that needs strong underscoring.”

The peso remains near a 12-year low against the U.S. dollar. It is Asia’s worst performing currency this year, having lost more than 4 percent against the greenback amid a widening trade deficit.

Reporting by Manolo Serapio Jr. and Enrico dela Cruz Additional reporting by Neil Jerome Morales Editing by Eric Meijer and Jacqueline Wong

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