The Philippine central bank will review the need for a measured policy response to anchor price expectations, Governor Nestor Espenilla said, signaling a near-term rate hike might be on the cards after inflation accelerated at its fastest pace in five years last month. (Reuters Photo/Dondi Tawatao)

Philippine C. Bank Reviewing Measured Response as Inflation Hits 5-Yr High

BY : KAREN LEMA

APRIL 06, 2018

Manila. The Philippine central bank will review the need for a measured policy response to anchor price expectations, Governor Nestor Espenilla said, signaling a near-term rate hike might be on the cards after inflation accelerated at its fastest pace in five years last month.

Stronger economic growth and a relatively slower pace of price gains have allowed the central bank to keep policy settings unchanged since a 25-basis-point hike in September 2014.

On Thursday (05/04), however, March data showed the inflation pulse had quickened sharply.

The consumer price index, calculated using 2012 as base year, rose 4.3 percent from a year earlier, above the median forecast of 4.2 percent in a Reuters poll, and exceeded the central bank's 2-4 percent target range for 2018 and 2019. It was also the highest inflation rate in five years based on available data under the new series.

"The coming task of the MB (Monetary Board) is to carefully evaluate the appropriateness of a measured policy response to firmly anchor inflation expectations in line with our forecast that inflation targets will continue to be met in 2018-19," Espenilla told reporters through a phone message.

The central bank had anticipated the target could be breached in March when it projected annual price growth of 3.8-4.6 percent for last month.

Nonetheless, Euben Paracuelles, economist at Nomura in Singapore, said the faster-than-expected inflation print supported his view the central bank will deliver a rate hike at its next meeting on May 10, which would be the first in over three years.

Following the CPI data's release, Continuum Economics also said there was "increasing likelihood" the central bank would tighten in the current quarter.

But not everyone is convinced that policy needed to be tightened. ANZ said in a note it expects rates to stay on hold for the rest of the year because inflation continued to be supply driven.

Inflation would likely average 3.9 percent this year and 3.0 percent next year, the central bank estimated at its meeting on March 22 where it decided to hold key interest rates steady. It however noted at that time inflation expectations had started to rise.

Reuters

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