Espenilla Holds Philippine Rate, Raises CPI Outlook in Debut

  • All 17 economists surveyed forecast rate would be kept at 3%
  • Central bank raises inflation forecasts through 2019 on oil

Nestor Espenilla

Photographer: Veejay Villafranca/Bloomberg

Philippine central bank Governor Nestor Espenilla kept interest rates unchanged in his debut policy meeting as head of the bank, while slightly raising forecasts for inflation because of pressure from oil prices.

The overnight reverse repurchase rate was left at 3 percent, Bangko Sentral ng Pilipinas said in Manila on Thursday, as predicted by all 17 economists surveyed by Bloomberg. Inflation is forecast to reach 3.2 percent this year and next, up from earlier estimates of 3.1 percent and 3 percent, respectively.

A former deputy governor, Espenilla, 58, began his term as chief last month, inheriting an economy that’s threatening to overheat and a currency under pressure. Inflation at 2.8 percent is still within the target band of 2 percent to 4 percent, and the central bank said on Thursday that it’s likely to remain near the midpoint of the range over its forecast period.

“The inflation environment remains manageable,” Espenilla told reporters. “While inflation forecasts have risen slightly due to the recent increase in global oil prices, the future inflation path continues to be within the target for 2017 to 2019.”

Central banks in Southeast Asia are sticking to monetary policy that’s supportive of economic growth. While some economists, including from BMI Research, predict higher interest rates this year, Espenilla has said the Philippines isn’t in a race to tighten monetary policy. Bank Indonesia Governor Agus Martowardojo signaled last week that policy makers may resume lowering interest rates as inflation pressures ease.

The central bank said the balance of risks to the inflation outlook “continues to be on the upside,” with a planned tax-reform program set to exert pressure on prices too. 

“BSP is likely to keep the policy rate unchanged for the rest of the year because it looks like inflation is going to be fairly stable,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore.

“Inflation could pick up next year if the tax package gets passed, at a time when growth is expected to continue to accelerate,” he said. “That could trigger the central bank to raise the rate in the second half of 2018,” he said.

Investors are watching closely for any clues that Espenilla will veer from the predictable policy stance of his predecessor, Amando Tetangco. The current governor has already adopted a different communication strategy, no longer disclosing monthly inflation forecasts and refraining from commenting on the currency’s daily swings.

— With assistance by Cecilia Yap, Michael J Munoz, and Clarissa Batino

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