Philippines Holds Key Rate as Emerging Nations Brace for Fed

  • All 18 economists surveyed correctly forecast rate at 3%
  • Emerging nations brace as Fed signals steeper tightening path

The Philippines left its benchmark interest rate at a record low as emerging nations brace for a steeper tightening path in the U.S.

Bangko Sentral ng Pilipinas kept the overnight reverse repurchase rate at 3 percent, it said in Manila on Thursday, as predicted by all 18 economists surveyed by Bloomberg. Policy makers increased inflation forecasts for 2017 and 2018.

The Philippines has been one of the few Asian nations to hold out on easing policy this year, preserving its firepower as the prospect of more rate increases in the U.S. sent regional currencies lower. Economists forecast Bangko Sentral will be among the first to follow the Federal Reserve in tightening policy next year as faster growth stokes inflation.

"Given the balance of strong economic growth outlook and rising inflation, we expect the BSP to be one of the first central banks to go back to the tightening table by the third quarter next year," said Eugenia Victorino, an economist at Australia & New Zealand Banking Group in Singapore. "Domestic demand has remained resilient, providing enough buffer against global headwinds."

For a quick explainer on the Philippines’ economic path, click here.

The central bank sees inflation averaging 3.3 percent next year compared with a November estimate of 3 percent. The 2018 inflation forecast was raised to 3 percent from 2.9 percent.

The Philippine peso has lost more than 5 percent this year, among the worst performers of Asian currencies. Stocks on Thursday slid to the lowest level since February on foreign fund outflows.

Rising Inflation

Inflation at 2.5 percent in November was the highest in 21 months, while the economy’s 7.1 percent expansion last quarter was among the fastest in the world.

“The economy doesn’t need a boost at this time and the inflation outlook remains benign,” Joey Cuyegkeng, a senior economist at ING Groep NV in Manila, said by phone before the decision. “There’s no compelling reason to move in sync with the Fed for now."

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