No need for preemptive rate hike–Dominguez

The Philippines doesn’t need to raise interest rates at this point, Finance Secretary Carlos G. Dominguez III said, defying calls from a growing number of economists who say the Central Bank is moving too slowly to act against inflation risks.

“To be preemptive, which is to take action before it’s needed, I don’t think that’s required at the moment,” Dominguez, who sits on the Central Bank’s seven-member board, said in an interview in Manila on Monday. “Rate-wise, I think the Monetary Board is on the right track and we keep an open mind.”

The Bangko Sentral ng Pilipinas, led by Governor Nestor A. Espenilla Jr., has so far resisted pressure to tighten monetary policy, even though inflation is set to breach the Central Bank’s target band of 2 percent to 4 percent this year and the economy is showing signs of overheating. A majority of economists surveyed by Bloomberg predict the benchmark rate will be raised from a record-low 3 percent in March.

Dominguez said he “doesn’t see prices running away” and inflation will probably ease because of tougher monitoring of retailers who may have artificially pushed up prices. Policy-makers also look at other factors when deciding on rates, including the pace of tightening in the US, he said.

Weak peso

The finance secretary brushed off concern about a weaker currency, saying it helps to boost the amount of money that Filipinos living abroad can send to their families back home, while increasing the competitiveness of exports and the outsourcing industry.

The Philippine peso is the worst-performing currency in emerging markets after the Argentine peso this year, losing about 4 percent against the dollar.

The Philippine economy is growing more than 6 percent annually, among the world’s fastest. While that’s mainly been driven by strong domestic demand, rising trade protectionism, particularly from the US, is a worry for authorities, Dominguez said.

The government will look into its effect on trade and investment, Dominguez said. “It can’t be good. This is really dangerous,” he added.



Turning Points 2018
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