Philippines Takes Strong Rate Action to Curb Soaring Prices

(Bloomberg) -- The Philippine central bank raised its benchmark interest rate by half a percentage point, stepping up a battle to curb inflation that will exceed its target for this year and next.

Bangko Sentral ng Pilipinas increased the overnight reverse repurchase rate for a fourth time to 4.5 percent, it said in a statement in Manila on Thursday, in line with the forecasts of 20 of the 22 economists in a Bloomberg survey. Two predicted a 25 basis-point hike.

“The Monetary Board recognized that a further tightening of monetary policy was warranted by persistent signs of sustained and broadening prices pressures,” the central bank said in a statement.

Bangko Sentral has now raised rates by 150 basis points since May, its most aggressive tightening since 2000. Indonesia’s central bank also raised its policy rate on Thursday, as emerging markets globally battle to contain currency turmoil triggered by higher U.S. interest rates and a stronger dollar.

Philippines Takes Strong Rate Action to Curb Soaring Prices

The Philippine economy is under threat from soaring prices with Standard Chartered Plc predicting inflation will exceed 7 percent next quarter. The peso has lost about 8 percent against the U.S. dollar this year, among the worst performers in Asia. The decision was announced after financial markets closed.

“We won’t count out another 50 basis-point rate hike in the BSP’s November meeting,” said Emilio Neri, chief economist at Bank of the Philippine Islands in Manila. “We expect two more 25 basis-point hikes in 2019.”

The central bank predicted inflation will breach its goal of 2 percent to 4 percent in 2018 and 2019, averaging 5.2 percent this year and 4.3 percent next year.

“The BSP may still be called to enact another round of rate hikes as inflation expectations remain elevated going into 2019,” said Nicholas Mapa, a senior economist at ING Groep NV in Manila, citing higher transport fares and wages.

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