LONDON — The Philippines central bank will take “very strong” action at its meeting on Thursday, deputy governor Diwa Guinigundo said on Tuesday, a move likely to be its fourth hike in interest rates in a row.
The central bank is widely expected to raise its key interest rate by 50 basis points to 4.5 percent in a bid to curb inflation and shore up the shaky peso currency, according to a Reuters’ poll.
“I expect very strong monetary policy action,” Guinigundo told Reuters at an investor meetings in London.
“We expect inflation for the last four months of the year to remain elevated and there are volatilities in the foreign exchange market. Volatilities in FX market could spill over to the real economy and produce more pressures on prices.”
The central bank has hiked interest rates by 100 bps since May, to tamp down price pressures from higher taxes, a peso down almost 9 percent since January, and rising food and fuel costs.
The peso hit its lowest since late 2005 again on Tuesday and the signs are that Thursday’s meeting will be viewed as a test of Governor Nestor Espenilla’s vow earlier this month to use the “full range” of instruments to manage inflation.
“If you are coming from the direction that the central bank is behind the curve then you don’t need 50 basis points, it is probably 100 basis points or 75 basis points. But I don’t think that is where we are coming from,” Guinigundo said.
The deputy governor also said there were other tools in place such as reserve requirements for banks which at 18 percent are some of the highest in the world. He added that these could even go up to 20 percent at some point, if deemed necessary. —Reporting by Marc Jones; Writing by Karin Strohecker; Editing by Jamie McGeever and Raissa Kasolowsky