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Philippine central bank in no rush to tweak policy as inflation not a worry
May 9, 2017 / 9:18 AM / 7 months ago

Philippine central bank in no rush to tweak policy as inflation not a worry

MANILA (Reuters) - The Philippine central bank is widely expected to keep its benchmark interest rate steady on Thursday, and reiterate that there is no urgency to change its accommodative monetary policy stance as inflationary pressures are not a threat.

A security guard stands beside a logo of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) posted at the main gate in Manila, Philippines April 28, 2016. REUTERS/Romeo Ranoco

The Southeast Asian economy is among the world’s fastest growing with robust consumption and infrastructure spending, which fueled last year’s growth, continuing to bolster economic activity as exports pick up.

The leadership change at the Bangko Sentral ng Pilipinas (BSP) in July was also not seen as a game changer, with the incoming governor, Nestor Espenilla, promising continuity in monetary policy and reforms when he takes over.

All 10 economists in a Reuters poll said they expected the central bank to leave its key policy rate PHCBIR=ECI at 3.0 percent this week, but eight believed the central bank would start raising rates in the second half of the year.

Seven of the eight economists have pencilled in a total 50-basis-point increase in the second half, which they said was warranted to head off rising upside risks to inflation from strong economic growth and higher utility costs.

At its policy meeting in March, the central bank lowered its inflation forecast for 2017 to 3.4 percent from 3.5 percent and to 3 percent from 3.1 percent for 2018, given global economic uncertainties.

Headline inflation was unchanged at 3.4 percent in April, well within the central bank’s 3-4 percent target for the year.

“We still believe that a policy tightening is imminent in the Philippines, but a move appears unlikely this week,” said Gundy Cahyadi, economist at DBS in Singapore.

“Amid higher oil prices, transport inflation is set to maintain its upward march. The outlook of headline inflation is also vulnerable to another shock in food prices,” Cahyadi added.

Any change to the central bank’s inflation forecasts for this year and next would be closely watched by the market for they could offer clues to the BSP’s next move.

Outgoing central bank Governor Amando Tetangco, who will still preside over the policy meeting this week and in June, has said the policy stance remained appropriate following last week’s inflation data.

The central bank has kept its policy settings on hold since it raised rates by 25 basis points in September 2014 as inflation has remained subdued even as the economy continued to gallop ahead at one of the strongest paces in Asia.

The selection of Espenilla as central bank chief offers a degree of comfort to investors and financial markets as he has pledged to continue his predecessor’s policies that have kept the economy humming and inflation in check.

The Philippines is due to release first quarter GDP data on May 18 and it will likely show the economy expanded between 6.5 and 7.0 percent, or faster, according to economic planning chief Ernesto Pernia.

The government plans to embark on a multi-billion-dollar “Dutertenomics” infrastructure splurge to drive the economy amid an uncertain global outlook.

Pernia told Reuters in March full-year growth could be in the “midpoint” of the government’s 6.5-7.5 percent forecast range. That follows the 6.9 percent expansion in 2016.

Reporting by Karen Lema

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