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NEWS UPDATES Asean Affairs        3  March 2011

Philippines central bank hints interest rate hike

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The Philippines Central Bank, Bangko Sentral ng Pilipinas (BSP), on Wednesday took on a more hawkish stance, signaling a possible increase in its record-low interest rates in the near term amid concerns over rising inflation.

“Indeed the scope for keeping rates has narrowed. The BSP will make any further adjustments to policy as and when necessary,” BSP Governor Amando Tetangco Jr. said in a text message to reporters.

He, however, noted that the central bank has taken steps toward normalizing the country’s credit condition, brushing aside suggestions it was behind the curve with respect to fighting inflation. “The BSP has already begun the normalization process when it lifted the liquidity enhancing measures, including the valuation and pricing on rediscount facility. We are mindful of the improved growth for the country, particularly given the better than expected growth performance last year. We are monitoring this against inflation and inflation expectations,” Tetangco said.

Given a potential buildup of price pressures in the near term, the International Monetary Fund (IMF) also on Wednesday said Philippine monetary authorities should stand ready to tighten the monetary stance to head off inflation risks.

The lender said Philippine monetary policy succeeded in keeping inflation low while fostering economic recovery.

A 200-basis-point cut in policy rates from December 2008 to July 2009, and additional crisis-related liquidity support measures, helped to cushion the Philippines from the downturn. With the recovery underway, the IMF said the BSP was right in unwinding its liquidity support measures starting early 2010.

But “a key policy challenge is to preserve macroeconomic stability while enhancing medium-term growth. Meeting this challenge will require a careful exit from stimulus policies in a complicated external environment, and further reforms to promote investment,” the lender said.

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