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Philippines Prefers `Prudent Pause' to Easing Amid Price Gains

Philippine Central Bank Holds Key Rate After Inflation Quickens

(Bloomberg) --

The Philippines central bank surprised most economists by keeping its benchmark interest rate steady, holding off further policy easing after inflation quickened last month.

Bangko Sentral ng Pilipinas maintained the overnight reverse repurchase rate at 4.5%, it said in a statement in Manila on Thursday. Only eight of 24 economists surveyed by Bloomberg predicted the decision with the rest forecasting a 25 basis-point reduction.

Key Insights

  • A “prudent pause” allows policy makers to “observe and assess” impact of last month’s rate cut as well as phased reductions in bank’s required reserves ratio to be completed in July, Governor Benjamin Diokno said at the briefing
  • The decision, while a surprise to many, is in keeping with Bangko Sentral’s focus on data dependency and delivering on its price stability mandate
  • Inflation, which quickened in May, is forecast to average 2.7% this year and 3% next year. The target range is 2-4%
  • Government must now follow through on a pledge to accelerate spending after a budget delay dragged economic growth lower in the first quarter

What Bloomberg’s Economists Say

"Despite dovish signals from Governor Diokno, we think the central bank’s focus on data-dependence meant that another reduction was unlikely so soon after its rate cut in May. We think there is scope for one to two more cuts this year, with the next likely in August or September."
-- Justin Jimenez, Bloomberg Economics

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  • While the bank is keeping the door open for a rate cut, policy makers “need to be careful in terms of the timing,” Deputy Governor Diwa Guinigundo, who retires by this month end, said at the briefing. A more dovish Federal Reserve is helping any easing bias
  • Indonesia’s central bank also left its benchmark interest rate unchanged on Thursday

--With assistance from Cecilia Yap and Andreo Calonzo.

To contact the reporters on this story: Siegfrid Alegado in Manila at aalegado1@bloomberg.net;Ditas Lopez in Manila at dlopez55@bloomberg.net

To contact the editors responsible for this story: Cecilia Yap at cyap19@bloomberg.net, ;Nasreen Seria at nseria@bloomberg.net, Karthikeyan Sundaram, Clarissa Batino

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