|
THE
central bank chief hinted Wednesday at further raising
interest rates to control inflation, which has been
driven to a 14-year high by spiraling oil and food
prices.
The
Bangko Sentral ng Pilipinas (BSP) has twice raised
rates, by a total of 75 basis points—to 5.75 percent for
overnight borrowing rates and 7.75 percent for overnight
lending rates—since annual inflation rates hit 11.4
percent in June.
BSP
Governor Amando Tetangco Jr. told journalists the bank
was prepared to take “all necessary actions” to tackle
high inflation and promote price stability.
He said
he expected inflation to average between 9 percent and
11 percent for the entire year and peak at 12 percent
before easing in last quarter. He said inflation would
remain in double digits through the first quarter of
2009.
The US
economic slowdown and higher oil and food prices have
prompted the government to lower the country’s growth
forecast this year to between 5.7 percent and 6.6
percent, from a range of 6.3 percent to 7 percent.
The high
cost of oil and food imports is also expected to raise
the country’s import bill by 10 percent.
The
National Economic and Development Authority (Neda)
reported early this month that the price of
cereals—chiefly rice and corn—increased by 42.2 percent
in June from a year ago.
Fuel
prices climbed 22 percent while transportation and
communications costs rose 12.4 percent in the same
period. The start of school in June also raised expenses
for education, providing a significant boost to
inflation, the agency said.
“The
biggest and most immediate challenge is the sharp spike
in global oil and food prices,” Tetangco told the
Foreign Correspondents Association of the Philippines.
He said
not even credit-rating agencies or the International
Monetary Fund had anticipated “the virulence and the
length of the price spikes in oil and food.”
To
prevent inflation from feeding a cycle of price and wage
hikes, the central bank raised policy rates by 25 basis
points in early June and by 50 basis points in mid-July,
after it forecast a spike in baseline inflation this
year and next, he said.
Tetangco
said the central bank recognized the need for “more
decisive monetary action” to reduce risks from prolonged
high inflation.
“Our eye
is on inflation because price stability is critical to
sustained, durable economic growth,” he said.
Meanwhile, Morgan Stanley on Wednesday said it has
turned “modestly bullish” on the Philippine peso and the
Indonesia rupiah after their central banks raised
interest rates in the past months to damp inflation.
“With
monetary policy ‘normalizing,’ the balance of
fundamentals is tilting back to a more supportive
position for the Philippine peso and the Indonesian
rupiah,” Stewart Newnham, a research analyst in Hong
Kong at Morgan Stanley, wrote in a research note sent to
clients. He confirmed the contents of the report by
telephone.
The peso
rose 1.3 percent to 44.02 against the US currency
Wednesday, the most in almost seven years, according to
the Bankers Association of the Philippines. The rupiah
gained 0.1 percent to 9,145 per dollar.
“We
believe the weak monetary policy response to inflation
has been the Achilles heel that has undermined the
overall fundamentals of their currencies,” Newnham said
in the report.
Morgan
Stanley didn’t give a new forecast for the peso but it
earlier predicted the peso to decline to 45.80 by
December 31.
Morgan
Stanley said its “bullishness” on both currencies is
tempered by the prospects of a slowdown in the global
economy. (AP, Bloomberg) |
