Bloomberg News

Philippines to Gauge Impact of Past Rate Cuts, Tetangco Says

April 16, 2012

The Philippine central bank will gauge the impact of this year’s two interest-rate cuts when it assesses monetary policy at this week’s meeting, Governor Amando Tetangco said.

The bank’s policy “remains appropriate, but we need to see how past policy actions are filtering to the economy,” Tetangco said in an e-mail reply to questions before the April 19 meeting. “We will also review our forecasts and make further sensitivity analyses to account for possible second-round effects” from developments such as demands for increases in transport fares and wages, he said.

Philippine bonds fell the most in three weeks and the peso declined as Tetangco’s comments reinforced the view that Bangko Sentral ng Pilipinas will refrain from cutting borrowing costs further. All 17 economists in a Bloomberg survey predict the central bank will keep its overnight borrowing rate at 4 percent this week, even after inflation in the Southeast Asian nation unexpectedly slowed to a 30-month low of 2.6 percent in March.

Monetary authorities will consider exports and inflation along with the “dynamics in credit growth, asset prices and expectations on oil price movements” during the meeting, Tetangco said. Remittances sent home by Filipinos overseas rose 5.8 percent in February from a year earlier, faster than the 5.4 percent pace in January, the central bank said today.

Reserve Requirement

Bangko Sentral cut its benchmark rate by a quarter of a percentage point at each of its past two policy meetings, taking the benchmark rate to 4 percent, which matched a record low. It cut banks’ reserve requirement this month to 18 percent of deposits from 21 percent to ensure the impact of changes in rules covering the funds would be neutral.

The yield on the 12.375 percent peso bond due February 2015 rose 11.3 basis points to 3.93 percent, increasing the most since March 21, according to noon fixing prices from Philippine Dealing & Exchange Corp.

“Pausing is the right move as regulators assess developments in the U.S. and oil prices,” said Ricky Cebrero, head of treasury at Philippine National Bank (PNB) in Manila. “Authorities will ensure that economic growth momentum, which is still fragile, is supported while closely guarding inflationary pressures that may be present.”

Jeepney Fares

The government increased the minimum fare in jeepneys, a common form of Philippine public transport, by 6 percent to 8.50 pesos ($0.20) last month. The Trade Union Congress of the Philippines sought a 90-peso increase in minimum wage, Labor Secretary Rosalinda Baldoz said on March 16.

Crude oil extended declines, falling as much as 0.9 percent in New York after a 0.5 percent drop last week.

Philippine inflation, targeted to average between 3 percent and 5 percent this year and next, remains manageable, Tetangco reiterated on April 4.

“The policy rate is optimal for BSP now; we don’t think any further cuts nor hikes at this stage are warranted,” said Enrico Tanuwidjaja, a Singapore-based senior currency analyst at Malayan Banking Bhd. (MAY) “Inflation can be kept at bay if the exchange rate policy is slanted towards keeping the peso less volatile and generally appreciating with Asian currencies.”

The peso closed 0.3 percent lower today at 42.778 per dollar after completing four weeks of gains on April 13, according to Tullett Prebon Plc.

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: Stephanie Phang at

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