Philippines must be “little aggressive” when raising rates

© Stocksak. FILE PHOTO – A logo of Bangko Sentral ng Pilipinas, the Central Bank of the Philippines, is seen at their main office in Manila, Philippines, March 23, 2016. REUTERS/Romeo Ranoco

By Neil Jerome Morales

MANILA (Stocksak). The governor of the Philippine central bank said Tuesday that the central bank should be “little aggressive” with tightening policy to keep inflation within its target range of 2 to 4 percent next year. This was yet another sign of his preference to increase rates.

Felipe Medalla, Bangko Sentral ng Pilipinas Governor (BSP), reiterated that he would vote in accordance with the U.S. Federal Reserve’s policy move. The Fed is expected to announce another 75 basis-point rate increase at its meeting on Nov. 2.

“If I am not the only one voting, then I will match the next Fed Increase,” Medalla, who heads the seven person policy-making monetary board, said to a banking forum.

The BSP has raised rates by a total 225 bps so far this year. It will hold its penultimate meeting approximately a week after the Fed policy review. It is expected to take place for its fourth consecutive 75-bps rate hike to control inflation.

Medalla stated that while the BSP has increased rates a few times, it only gave policymakers a 50 percent chance of meeting next year’s inflation target.

Annual inflation has risen above the central bank’s comfort level with the average rate for the nine months to Sept at 5.1%. This was partly due to a weaker Peso that has exacerbated already high import food and fuel costs.

The Philippine peso has been the worst performing currency in Southeast Asia, losing more than 13% to the U.S. Dollar so far this year. It closed slightly more firm at 58.78 USD on Tuesday than Monday’s close at the same price at 58.87.

Medalla stated, “Given the current exchange rate, we must respond to the Fed point-by-point.”

Medalla spoke to reporters at the forum, saying that the central banking was intervening in FX markets “almost every day” to counter volatility and that the bank’s foreign exchange reserves were adequate.

He said that the peso reaching 61 to a $1 was “not the end” of the world.

Monday’s statement by the country’s finance secretary stated that the government would not permit the peso to break 60, having already fallen to multi-year lows.

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