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Interest Rates
August 4, 2007

Central bank signals no change in rates
The Philippine central bank signalled it would keep interest rates steady at a rate-setting meeting later this month as price risks still remained despite a benign inflation outlook.

Governor Amando Tetangco told reporters over the weekend that the central bank remained cautious about price pressures.

"If you look just at the inflation outlook, you'll see that there's scope for easing but at the same time, there are still potential risk factors that we have to be mindful of including volatility in oil prices, possible wage hikes and liquidity growth," he said.

On August 3, the central bank said it would keep its average inflation forecast of 2.6 to 3.1% this year, lowered from an earlier estimate of 3.3 to 3.8%, despite shortfalls in local grain production that could push up food prices.

The monetary authority said it would wait for further data on the impact of a prolonged dry spell on harvests and consumer prices before revisiting the 2007 average inflation estimate. Average inflation in 2006 was at 6.2%.

The central bank slashed its overnight borrowing rate by 150 basis points to 6 percent in July but removed a tiered interest rate scheme that had lowered overnight rates on large deposits, twin moves it described as neutral for monetary policy.

The central bank has been concerned about red-hot money supply growth but data in June showed that it had slowed to 19.4% from a year earlier -- the first time since November that annual growth fell below 20% -- as the central bank soaked up liquidity through the use of high-yielding deposit accounts. The central bank's next rate-setting meeting is on August 23. Reuters


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