Philippine central bank stays hawkish on policy

Manila. The Philippines central bank remains guarded on monetary policy and is keeping a hawkish bias, Deputy Governor Diwa Guinigundo said Friday, indicating it’s not ready to cut interest rates just yet.

“We are more on the hawkish side in the sense that we recognise the risks on the market,” he said in an interview with Bloomberg TV’s Nejra Cehic from Osaka, where Philippine officials held a briefing for investors.

“We recognise the possibility of oil prices surging again,” the deputy governor said. “We are trying to be more cautious about these potential risks that could impinge on our ability to maintain price stability.”

Bangko Sentral ng Pilipinas, which presided over one of Asia’s most aggressive tightening cycles last year, hasn’t dialled down its rhetoric. In contrast, the odds of a rate cut in Indonesia are boosted after Governor Perry Warjiyo toned down his stance. The Philippines raised the key rate by a total of 175 basis points last year after higher prices of fuel, rice and taxes pushed inflation to a nine-year high.

Last year’s rate increases won’t be a drag to the economy, Finance Secretary Carlos Dominguez said in a separate Bloomberg TV interview in Osaka. The government is “stepping on the gas” for its $170 billion infrastructure program as the central bank paused its tightening cycle, he said.

Asian central banks held back on further tightening this year, with India even reducing rates as the US Federal Reserve pauses its rate-hike cycle. The peso, which has climbed 1 per cent this year, lags gains in other Southeast Asia currencies. The currency rose 0.1 per cent on Friday along with the rupiah and the rupee.

The Philippines left the policy rate unchanged in its last two meetings as inflation cooled for a third month in January. The next rate decision will be on March 21.

“We are waiting for the right time before we can adjust the reserve ratio,” Guinigundo said. “We want to make sure our move on the RRR will not affect inflation expectations.”

The central bank cut banks’ reserve-requirement ratio by 2 percentage points to 18 per cent last year as part of a medium-term plan to bring it to single-digit levels.