Philippine Central Bank Stays Hawkish on Policy, Deputy Says

(Bloomberg) -- 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 recognize 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 recognize 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 dialed 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.

Philippine Central Bank Stays Hawkish on Policy, Deputy Says

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.

Read Dominguez’s assurance that the Philippines will keep its budget deficit in check

Asian central banks held back on further tightening this year, with India even reducing rates as the U.S. Federal Reserve pauses its rate-hike cycle. The peso, which has climbed 1 percent this year, lags gains in other Southeast Asia currencies. The currency rose 0.1 percent 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 percent last year as part of a medium-term plan to bring it to single-digit levels.

Other key comments from Guinigundo and Dominguez:

  • When asked about Governor Nestor Espenilla who’s been on intermittent leaves since Sept., Guinigundo said he doesn’t know much about his condition except that he’s sick.
  • “We have a solid group within the central bank, professional with a good institutional memory and committed to public service so despite the absence of the governor, I think the BSP has been running quite smoothly,” Guinigundo said.
  • The nation is prepared to return to the yuan and yen debt markets, and even to the euro bond market, possibly in the first half of the year, Dominguez said. This year’s Panda debt offer will be “slightly larger” than last year’s $200 million equivalent, he said.
  • “We have been absent from the euro market for quite some time and we are making preparations to return to that market,” Dominguez said.
  • More tax reforms and amendments to tax incentives are among the measures Dominguez will continue to push in Congress during the second half of President Rodrigo Duterte’s term which ends in 2022

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