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Philippines May Pause After Two Rate Cuts, Tetangco Says

March 12, 2012

Amando Tetangco, governor of Bangko Sentral ng Pilipinas. Photographer: Veejay Villafranca/Bloomberg

Amando Tetangco, governor of Bangko Sentral ng Pilipinas. Photographer: Veejay Villafranca/Bloomberg

The Philippine central bank may pause after reducing the benchmark interest rate at both of its meetings so far this year as elevated oil prices threaten to spur inflation, Governor Amando Tetangco said.

“Pausing gives us time to digest and monitor the impact of past policy actions and to consider other relevant data,” Tetangco said in an e-mailed reply to questions March 10. “A pause is always on the table, as are other policy moves.”

Bangko Sentral ng Pilipinas cut interest rates by a quarter-percentage-point at each of its past two policy meetings, taking the overnight borrowing rate to 4 percent, the lowest level in a year. The Philippines reduced borrowing costs in a bid to shore up faltering growth and stave off the destabilizing effects of Europe’s debt crisis on the global economy.

Crude oil prices have gained about 8 percent so far this year, a jump that risks spurring price pressures in a nation that imports almost all its requirements, even as inflation cooled to its slowest pace in more than two years in February.

“Second-round effects cannot be ruled out, especially if price hikes are persistent, so we are watching the situation carefully,” Tetangco said.

The yield on the 8 percent bond due July 2031 rose for the first time in five days, climbing nine basis points to 5.73 percent, according to Tradition Financial Services at 3:36 p.m. The Philippine Stock Exchange (PCOMP) Index halted two days of gains.

Transportation Fares

The Land Transportation Franchising and Regulatory Board may decide on a 0.50-peso increase in minimum transportation fares this week, Chairman Jaime Jacob said in a mobile phone message yesterday. The minimum fare in jeepneys, a common form of Philippine public transport, is currently 8 pesos ($0.19)

While the central bank included a “modest” fare adjustment on its within-target inflation forecast this year, any “pass through” impact of oil prices tends to be significant, Tetangco said. The next policy meeting will be on April 19.

Consumer prices rose 2.7 percent from a year earlier in February, the slowest pace since September 2009. Oil for April delivery climbed to $107.40 a barrel on the New York Mercantile Exchange on March 9. It fell from a one-week high today after exports growth in China slowed more than forecast.

“Petroleum products are considered as input costs to production and in transporting people and goods that ultimately affect headline inflation,” Economic Planning Secretary Cayetano Paderanga said in a statement yesterday. The government is “mindful of the renewed volatility” in prices, he said.

ECB, Fed

Following Greece’s successful debt swap and the implementation of its second bailout package investors will “more closely monitor” the policy actions of the European Central Bank, Tetangco said in a separate e-mail. They’ll also watch whether improvements in the U.S. economy may forestall the need for further quantitative easing by the Federal Reserve, he said.

The Philippines will assess “whether there would be significant changes in the direction and speed of capital flows, to see if there would be a need to adjust the stance of policy,” the governor said.

U.S. employers took on more workers than forecast in February, completing the best six months for payroll growth since 2006 and showing more improvement in the labor market, a March 9 report showed. The jobless rate held at a three-year-low of 8.3 percent.

The Philippine peso, which has climbed almost 3 percent this year on the back of remittances and overseas investments, could serve to moderate the impact of higher prices for imported oil, Tetangco said. The currency fell 0.2 percent today to 42.658 per dollar, according to Tullett Prebon Plc.

“Persistent high oil prices bear close watching,” Tetangco said. “The uncertainty in global oil prices indeed constitutes an upside risk to the inflation outlook. The BSP is prepared to undertake any required monetary policy action when necessary.”

To contact the reporters on this story: Max Estayo in Manila at; Clarissa Batino in Manila at

To contact the editor responsible for this story: Shamim Adam in Singapore at

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